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News & Analysis UK

Thomas Cook, Co-operative To Merge Travel And Foreign Exchange Units - Update

October 8, 2010, Friday, 15:56 GMT | 10:56 EST | 19:26 IST | 21:56 SGT

(RTTNews) - Travel services firm Thomas Cook Group Plc (TCG.L) said Friday that it agreed with The Co-operative Group to merge their high street travel and foreign exchange businesses. Completion is anticipated in December 2010, subject to anti-trust clearance and certain other conditions.

There will be no cash consideration at completion of the merger, following which Thomas Cook will have 70% of the shares in the new company and Co-operative will have a 30% shareholding.

The merger is expected to create UK's largest high street travel network with over 1,200 shops, and the second largest provider of retail foreign exchange. According to Thomas Cook, the agreement reinforces its strategy to strengthen the competitive position of its UK business.

Under the deal, Thomas Cook Group CEO, Manny Fontenla-Novoa, will serve as Chairman of the new company, while Ian Derbyshire, currently CEO of Thomas Cook's UK business, will serve as CEO. Paul Hemingway, who is Finance Director of Co-operative's Travel and Specialist Retail businesses, will be the Finance Director of the new firm.

Thomas Cook will appoint three Directors to the Board, including the Chairman, while Co-operative will appoint two of the Directors.

Under the merger, Thomas Cook and The Co-operative Travel will contribute their entire retail travel estates in the UK, comprising 803 and 401 shops respectively, together with their foreign exchange and cruise operations. Both will have a combined base of 4.3 million customers. Co-operative Travel will also bring its home working business with 345 colleagues, its national corporate travel business, its web and call centre operations and Freedom Travel, its franchise group which serves 148 members.

Meanwhile, the merged entity will not include Thomas Cook's online travel business,, or any of its UK tour operating businesses.

The company expects that the landmark deal would increase in-house distribution of Thomas Cook's own travel products to around 80% from 69%, and provide significant opportunity to drive additional sales through the combined network

It is anticipated that the merger will result in synergies in excess of GBP 35 million per annum in the merged entity, and the deal would drive further upstream synergies in Thomas Cook's mainstream and independent businesses of GBP 10 million. Both the merged entity and the upstream synergies are estimated to be fully achieved in the financial year ending September 30, 2012.

Thomas Cook and Co-operative Travel's retail businesses are projected to deliver operating profit of GBP 12.4 million for the twelve months ended September 30, 2010, and GBP 0.1 million for the twelve months ending January 1, 2011. The merged entity should be cash positive throughout the year and generate interest income.

For Thomas Cook, the merger will be cash generative and earnings accretive from the first full year of operation, before integration costs.

Thomas Cook Group Chief Executive Officer, Manny Fontenla-Novoa said, "Today's announcement, together with our plans to cut costs and streamline the rest of our UK business, will put us in a much stronger position, should market conditions in the UK remain weak, and will build a firm foundation for the future. For our shareholders, this transaction will deliver synergies, be earnings accretive and unlock significant value for no initial cash consideration."

TCG.L is currently trading at 186.30 pence, up 6.70 pence or 3.73%, on a volume of 1.6 million shares.