Thomas Cook - Kuoni merger rumours could spark bid battle

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Thomas Cook and Kuoni moved to quash speculation yesterday that they are planning a £1bn merger, though travel sources insisted talks were taking place.

The two companies were responding to weekend press reports suggesting that German-owned Thomas Cook was in discussions with the upmarket Swiss tour operator about creating a new force in the European travel market.

If a deal does materialise it would continue the consolidation in the international travel sector and bring together Thomas Cook's mass market holiday brands, which include JMC and Club 18-30, and Kuoni's expertise in upmarket holiday packages.

The reports suggested that the merged company would be listed in Switzerland and run by Stefan Pichler, Thomas Cook's chairman and chief executive. Thomas Cook would control 60 per cent of the merged company. The reports said Thomas Cook was being advised by Morgan Stanley, with Kuoni advised by CSFB.

Both companies denied a deal was being discussed, but travel experts indicated that talks were continuing. One said: "It's all about scale in this market, so you can leverage your buying power. Kuoni seems to have been looking for a deal for a while."

However, Thomas Cook recorded substantial losses last year while Kuoni remained in the black.

The tie-up is seen as a neat fit, as Kuoni is strong in Scandinavia where Thomas Cook has no presence. The combined business would also cater for a cross-section of holiday tastes, from Thomas Cook's boisterous, youth-orientated Club 18-30 holidays to Kuoni's long-haul holidays to destinations like the Maldives and Mauritius.

The possibility of a deal fuelled speculation about whether other potential bidders might enter the fray. Analysts said the most likely interloper was TUI, the German company that owns Thomson Travel Group. It too would be interested in adding a prestige name like Kuoni to its portfolio.

First Choice Holidays was also seen as a possible candidate. It sought a merger with Kuoni in 1999, which was wrecked by a counter-bid from Airtours, now MyTravel.

First Choice declined to comment yesterday but observers pointed to remarks made by Peter Long, its chief executive, at First Choice's interim results last week. He suggested that First Choice's strategy centred on organic growth with smaller, bolt-on acquisitions. He said he did not foresee First Choice participating in any major consolidation of the European travel sector.

Thomas Cook dismissed suggestions of an imminent deal. "There are currently no talks on a merger with Kuoni," a spokesman said.

Kuoni was equally adamant. A spokesman said: "We are not planning a merger. But everyone is talking to everyone else in this business. We had talks with Thomas Cook and others in the spring. But it was not about a merger but about working together on our charter operation in Scandinavia."

Any deal with Kuoni would have to be friendly, to get around the Swiss company's unusual shareholding structure. The Kuoni and Hugentobler Foundation controls 25 per cent of the company's voting rights even though it owns just 6.25 per cent of the capital.

The deal would also provide an exit route for Thomas Cooks's controlling shareholders, Lufthansa, the German airline, and KarstadtQuelle, the German retail conglomerate.

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