Holiday firm Thomas Cook to buy rival MyTravel

German-owned Thomas Cook is to buy British package holiday rival MyTravel, the companies said creating a travel giant worth about £2.8 billion.

Thomas Cook, which is owned by stores group KarstadtQuelle will hold 52 per cent of the new entity, with the other 48 per cent controlled by MyTravel's shareholders.

The new company is to be called Thomas Cook Group Plc and will take around 19 million people a year on holiday.

MyTravel chief executive officer Peter McHugh said the deal would create a company with annual revenue of around eight billion pounds and close the gap on Europe's biggest travel operator TUI AG. The deal is due to be completed by June.

The new firm, to be headquartered in London and listed on the London stock exchange, would be worth around £2.8 billion following a sharp jump in MyTravel shares on Monday.

As a result of the merger, the companies said they had ditched plans to take over the mainstream package holiday business of British competitor First Choice.

MyTravel shares jumped more than 30 per cent to a record 317 and a half pence before easing back to 302 and a half pence, while KarstadtQuelle rose almost 3.5 per cent to €27.11.

Shares in First Choice dropped sharply and were down 16.8 per cent at 253-3/4 by 0820 GMT.

The package holiday industry has seen a decline as growing numbers of holidaymakers put together their own trips using the internet and low-cost airlines. Companies are attempting to counter this scaling up their businesses to make savings, as well as branching into growing leisure markets such as cruises.

MyTravel and Thomas Cook said they expected to make cost savings of £75 million a year from combining the two businesses although it would take at least two years for the cost savings to come through.

"We are saying there will be at least £75 million of savings... We think it will take 24 to 30 months to achieve the forecast," Mr McHugh said.

MyTravel has a total of 12,947 staff, while Thomas Cook has 19,775 employees across its operations. Altogether, the two groups have 1,030 shops in Britain, with 18,781 staff.

Mr McHugh said the bulk of any job losses would be in Britain as it closes stores and eliminates duplicated administrative roles. "There certainly will be some job cuts but it's premature to say how many," he said. "The major focus (of job losses) will be in the UK," added Thomas Cook chief executive officer Manny Fontenla-Novoa.

Thomas Middelhoff, KarstadtQuelle's chief executive officer and chairman of Thomas Cook, will chair the new company, while MyTravel Chairman Michael Beckett will act as deputy.

Mr Fontenla-Novoa is to be CEO of the new firm after an initial settling-in spell which will see him work alongside Mr McHugh.

Formerly known as Airtours, MyTravel made a disastrous dash for market share and came close to collapsing under the weight of its debt in 2003 when leisure markets turned down.

The company, which runs Going Places travel agents, has battled back by cutting costs, closing shops and reducing the number of holidays it sells. It reported a pretax profit of £43.8 million in the year ended October 31.

Thomas Cook also returned to profit for the first time in four years last year after it too slashed jobs and costs.

KarstadtQuelle moved in December to take full ownership of Thomas Cook when it said it would pay Deutsche Lufthansa €800 million for the half it did not own.

UBS, Credit Suisse and Tricorn Partners advised MyTravel while Goldman Sachs advised KarstadtQuelle and Citigroup advised Thomas Cook.