First Choice shares closed down 10.5p at 177p after it emerged that a draft decision on the bid, recommending that it is not given clearance, had been sent to a special advisory panel.
Airtours is understood to have had sight of the draft and intensive discussions between the company and the Commission are now under way as it tries to ease the regulator's worries. In particular Airtours is preparing to negotiate the conditions it would accept on the bid in order to secure clearance.
If agreement cannot be reached and the bid is blocked it will represent a severe blow to City investors who have been gambling that Airtours would be cleared to make a renewed takeover, having spurned a rival offer for First Choice from Kuoni, the Swiss-based travel group, in July. Kuoni said yesterday that it would not bid again for First Choice, even if the Airtours approach was blocked.
In June, the Commission opened a full investigation into the proposed Airtours bid because of concerns that a lack of competition would have an adverse effect on prices. UK stock exchange authorities allowed the bid to lapse, but the company has said it would renew its offer if it won clearance from the EU. The Commission will take a final decision on 22 September. Under the terms of the bid made by Airtours in April, the company would acquire First Choice for pounds 852.1m, valuing the shares at 229p each. The bidder would offer one new Airtours share for every two First Choice ordinary shares and 1.6 new shares for every two convertible preference shares. Airtours says the alliance would produce pounds 35m in annual cost savings.
In the UK foreign package holiday market, Airtours ranks second, after Thomson, and First Choice fourth, after Thomas Cooke. The four major firms are vertically integrated, with substantial interests in charter airline operation and travel agency. The enlarged group would give Airtours a 34 per cent share of the UK market, overtaking Thomson's 28 per cent share.
Airtours is active in tour operating, travel agencies, charter airlines, hotels and cruise ships with operations in 17 countries across Europe and North America. First Choice has interests in tour operating, travel agencies, charter airlines, seat brokering and car rental brokering, mainly in the UK and Ireland with some activities in Canada.