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AIRTOURS, Britain's second-largest package tour operator, gave up on its pounds 950m offer for First Choice Holidays after the European Union began an extended investigation into monopoly concerns.

Even though most First Choice shareholders favoured the offer over an agreed merger with Switzerland's Kuoni, the EU said the acquisition could stifle competition in the holidays market and lead to dearer holidays.

Airtours will free First Choice shareholders who gave their backing to the offer and allow the agreement to expire. While City regulations would usually ban Airtours from making a fresh offer for 12 months, it is seeking consent from the Takeover Panel to do so. The company also pledged to co-operate with the EU.

First Choice shares fell 12 per cent on the news, while Airtours was barely changed and Kuoni shares dropped 2.4 per cent on the Swiss stock market.

The climbdown by Airtours gave Kuoni a second bite of the cherry after the Swiss firm won approval from UK authorities to revive its offer. The two companies had agreed to a pounds 820m merger in March before Airtours came along with its higher bid.

First Choice said shareholders should approve that bid rather than wait for the outcome of the EU inquiry, which could take as long as four months.

Airtours also said its loss in the six months to 31 March widened to pounds 20.3m, or 4.3p a share, compared with pounds 17.5m last year. The firm's acquisitions of Direct Holidays, Bridge Travel Group, Cresta Holidays and Panorama Holidays, which all lose money in winter, hampered results. Overcapacity in Canada also meant that its North American loss widened.

The company will pay an interim dividend of 1.65p, up from 1.50p last year.

Airtours said winter 1999/2000 bookings in the UK are 4 per cent above last year. That's well below the increase of 28 per cent announced by First Choice last week.