OFT inquiry into Co-op merger with Thomas Cook

The Office of Fair Trading is to investigate the merger between the high street travel agent and foreign exchange businesses of Thomas Cook and the Co-operative Group.

The European Commission had initially considered the deal, which was first unveiled in October, but it has now handed the case back to the OFT because it only relates to the UK market.

The UK competition watchdog has 45 working days to investigate the proposed merger, which the two companies had been hoping to conclude this quarter but is now on hold.

In a statement, Thomas Cook said it would "continue to work closely with the OFT to obtain a rapid clearance" and is thought to be privately confident the deal will be approved.

The companies estimate the combined group can deliver cost savings of about £35m a year through measures including combining headquarters, back office functions and reducing supplier contracts. But this could lead to "hundreds" of job losses.

The merger would create the UK's biggest high street travel network with more than 1,200 shops – along with 4.3 million customers – and the second-largest provider of retail foreign exchange services.

While no cash will change hands, Thomas Cook will own 70 per cent of the new company with the Co-operative Group, which also has grocery, banking, funeral and pharmacy divisions, holding the remaining shares.

Both companies will retain their separate branding, but about 70 of Thomas Cook's Going Places outlets will be rebranded The Co-operative Travel.

The deal would increases Thomas Cook's footprint in the North and Midlands, where The Co-operative Travel is stronger, and reaffirms their commitment to the high street. It is the third big deal that the Co-operative Group has completed over the past two years. In 2009, the Co-op acquired the local grocery chain Somerfield and Britannia Building Society.