Airtours launches pounds 852m hostile bid for First Choice
Friday 30 April 1999
Airtours' bid for First Choice would give the combined company 34 per cent of Britain's package holiday market, ahead of Thomson Travel which has 25 per cent.
Thomson has repeatedly said it would defend its market leadership vigorously and said so again at its annual meeting yesterday. "We have been market leader in the UK for the past 25 years and have no intention of surrendering this position," Thomson's chairman Michael Brown told shareholders.
The bellicose remarks fuelled speculation that Thomson will launch a rival bid for First Choice, if only as a spoiling tactic to delay the issue in a lengthy competition inquiry
First Choice is already in the midst of a pounds 1.5bn agreed merger with Kuoni, the upmarket Swiss tour operator. Yesterday First Choice said the Airtours bid "raises significant competition issues" which would eventually scupper the deal.
The all share bid from Airtours, which unsuccessfully bid for First Choice in 1993 when it was called Owners Abroad, is pitched at 229p per share. This is a 54 per cent premium to the implied price of First Choice shares in the Kuoni bid.
Airtours' bid has already received acceptances or indications of support from 43.7 per cent of First Choice shareholders. Of these, 29 per cent are irrevocable. This figure includes the 10 per cent stake held by Thomas Cook, which blocked the last Airtours-First Choice bid when it acquired a "White Knight" blocking stake.
Analysts said Thomson could possibly launch a bid of up to 250p per share, valuing First Choice at nearly pounds 940m.
Thomson backed up its sabre-rattling rhetoric with the launch yesterday of an aggressive price campaign and an increase in holiday capacity for next year. The move sent shock waves through the sector, which has only recently recovered its reputation for stability after woefully misjudging demand in 1995.
Thomson's shares closed 24p lower at 130.5p while Airtours share also fell , by 27p to 431p. First Choice shares rose 7.5p to 200.5p, some way below the level of the Airtours offer.
Airtours said it was confident that its bid would not fall foul of the regulatory authorities. It claimed the UK market share of the combined group would be "only" 25 per cent. It added that it expected the bid to be scrutinised by the regulatory authorities in Brussels rather than the UK's Office of Fair Trading and that it would receive "fast track" clearance in 6-8 weeks. "We believe we have got a very good chance of achieving competition clearance" said David Crossland, Airtours' chairman.
Airtours believes it will achieve annual cost savings of pounds 35m from the deal. These will be achieved through the combination of head offices and administrative functions.
The deal was criticised by independent tour operators and smaller travel agents who complained the merger would create an effective duopoly within the UK travel industry. Airtours admitted the deal would not lead to lower holiday prices.
The terms of the Airtours offer are one new Airtours share for every two First Choice shares held.
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