Airtours aims to cut deal with EC

SHARES IN First Choice Holidays fell 9 per cent yesterday as the stock market reacted to the European Commission's decision late on Thursday to subject Airtours' hostile pounds 852m bid for the company to a four-month investigation.

However, City analysts and some First Choice institutional shareholders suggested that Airtours may be able to persuade the commission to waive the deal through if it undertakes to divest some of its airline capacity.

Analysts say a reduction of 5-10 per cent in capacity and a decision to make aircraft seats available to smaller travel firms may be enough to persuade the commission to sanction the takeover.

One analyst said: "The problem for the EU is charter capacity and that is what Airtours will be keen to sort out. I think Airtours will happily divest of capacity if that is what is needed to secure the deal."

Airtours would not comment on its intentions but said there are a number of charter firms already in operation such as Monarch, EasyJet, Debonair and BA's Go. The company also said the Takeover Panel could extend the bid timetable to give Airtours more time to secure a deal if that would be in the best interests of shareholders.

One First choice institutional shareholder said: "We are tied in anyway for 21 days [when the Airtours bid will lapse] so we will be sitting tight. Airtours might be able to broker a deal with the EU."

However First Choice, which wants to pursue a rival plan to merge with Kuoni, said the commission is unlikely to short-circuit its own investigation.

It says Airtours faces a tough decision in three weeks' time when it will have to choose between allowing its bid to lapse or pressing ahead with the investigation still continuing.

First Choice said that although Kuoni will not be improving its terms, the proposed merger between the two will lapse on 29 June. If Airtours has failed to persuade the commission of its case before then, First Choice shareholders can either accept the Kuoni merger plan or hang on for a possible new bid from Airtours if clearance from Brussels is secured.

A First Choice spokesman said: "We will be explaining the huge risks associated with the investigation and the damage that will be done to First Choice by an extended period of uncertainty."

First choice shares closed 19.5p lower at 203p while Airtours shares also fell.

Thomson Travel, which has committed to adding holiday capacity to try to combat the threat of a combined Airtours-First Choice, has said its plans are flexible.

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