Green light for Thomas Cook-Co-op merger

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The Independent Travel

Plans by Thomas Cook and the Co-op to merge their high street travel businesses were backed by the competition watchdog today.

The tie-up involves two of the three largest travel agents on the high street, but in provisional findings the Competition Commission said it did not expect the deal will have a major impact on customers buying package holidays.

With more than 1,200 shops, the newly-formed company will be the UK's largest travel agent and second biggest in foreign exchange.

It is expected that it will also lead to job losses and store closures after Thomas Cook promised savings of around £35 million a year from the merger.

Thomas Cook, which will own 70% of the new company, is struggling with a drop in demand for overseas holidays, as anxious Britons opt to stay at home. It is also facing the impact of high fuel prices and the turmoil in north Africa.

Its chief executive Manny Fontenla-Novoa said today: "High street retail remains an important distribution channel for package holidays and one that consumers continue to value."

The Commission said it found the ability of high street travel agents to flex their prices at a local level was limited and competition from internet and other package holiday operators reduced the scope for price rises.

Laura Carstensen, the Commission's deputy chairman and inquiry leader, said: "We think that customers are unlikely to suffer from significantly higher prices or reduced choice as a result of the joint venture."

The Commission will now seek feedback on its provisional decision and said it planned to publish its final report by August 16.

The findings offer a timely boost to Thomas Cook, which saw shares tumble more than 20% last week after it issued its third profits warning in a year.

It has 780 travel stores, while the Co-op has 360 and the Midlands Co-operative, which is also involved in the merger, has a further 100.

Thomas Cook and Co-operative Travel stores will continue to operate under their own brands, but Thomas Cook's Going Places shops will be rebranded as Co-operative Travel. The business is expected to be based at Thomas Cook's existing headquarters in Peterborough.

Co-operative Travel, which started life as a day excursion business in 1905, has its head office in Burslem, Stoke-on-Trent, and operates call centres in Manchester and Barrow in Cumbria.

Wyn Ellis, an analyst at Numis Securities, said synergy benefits from the tie-up were expected to be substantial.

He said: "The deal should help boost short-term profit, but we question the strategic merit of increasing the high street exposure of the group."