Owners, which was poised to consummate an alliance tomorrow with Thomas Cook, the travel agency, rejected the bid. The company, chaired by Howard Klein, said it had a better future through the Thomas Cook link and that Airtours' bid terms were miserly.
The bid is conditional on Cook not taking the proposed 10 per cent stake in Owners. However, that hurdle was sidelined by Owners yesterday when it said it would move to adjourn tomorrow's extraordinary shareholders' meeting, which was called to consider the Cook deal.
Stock market analysts said the bid undervalued Owners and most believed the deal would be referred to the Monopolies and Mergers Commission.
The enlarged group would control 30 per cent of the overseas tour market. A 25 per cent-plus hold on a sector is usually regarded as a potential monopoly.
But David Crossland, chairman of Airtours, is confident of escaping an MMC investigation. He said a precedent was set in 1989 when Thomson, the market leader, was allowed to buy Horizon Travel, boosting its share from 28 to 39 per cent.
Thomson, which has since seen its dominance shrink to 33 per cent, yesterday refused to comment on the bid. But industry observers said it would almost certainly voice its objections.
Rumours about an Airtours bid started last summer, prompting a statement from Owners in October that it had received a 'tentative' approach. The two companies were at odds yesterday as to who had approached whom.
Airtours claimed it had been approached by two Owners directors, who were 'interested in doing a deal because they saw the synergies'. It also said that Owners' chairman had subsequently produced 'information which could have led to a friendly deal'.
Mr Klein said that was a 'distortion of the truth'. He claimed that Mr Crossland of Airtours invited two directors, Roger Allard and Errol Cossey, to dinner last summer.
'All sorts of things were discussed, including the merits of a merger. I was away at the time, and another meeting was set up. He (Mr Crossland) said we might be interested in bidding but did not come up with a price.'
Airtours also claimed that a friendly bid was scuppered by Owners' reluctance to provide a profit forecast, which it needed before deciding on a price for a merger. Owners said it was impossible to give an accurate forecast because its financial year to 31 October had not ended.
The hostile bid terms value Owners' ordinary shares at 113p, against a close yesterday of 120p, up 11p. Airtours, which is offering three shares for every eight held in Owners, fell by 19p to 302p.
'I don't think they will get it with this offer,' said Roy Owens, a Smith New Court analyst. His sentiments were shared by Mark Finnie, of NatWest Markets: 'There must also be question marks over an MMC referral.'
The City, though, was convinced of the commercial logic of the merger. Both operate charter airlines and tour operations, while Airtours also has high-street retail outlets following its recent purchase of Pickfords, the third-largest travel agency chain.
A combined group would own 27 aircraft, carry more than 3.7 million tour passengers annually, and run 334 retail outlets. The combined stock market value would exceed pounds 550m.
Both are profitable, although Airtours' growth since 1988 has been greater. Airtours' compound pre-tax profits growth over the past five years was nearly 73 per cent. It made pounds 36.5m in 1991/92, while Owners' profits fell from pounds 32m to pounds 25m, giving a five-year compound rate of 27.6 per cent.
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