London: European tour operator Thomas Cook is merging its high street travel and foreign exchange business with the Co-operative Group’s operation in a cost-cutting drive ahead of an expected period of weaker consumer spending.
The deal to create Britain’s largest retail travel network sent Thomas Cook shares up.
“This is possibly the last consolidation opportunity in this sector,” Thomas Cook Chief Executive Officer Manny Fontenla-Novoa said. “This is a merger and no cash is changing hands, which makes it a very attractive deal for both parties.”
Thomas Cook, which announced a cost-cutting programme last week, said the deal will result in savings and benefits of over £35 million ($55.8 million) per year, plus a further £10m boost through increased product sales. Fontenla-Novoa said the move should put Thomas Cook, which will hold a majority stake in the combined business, in a much stronger position should market conditions remain weak.
The new company, which does not include Thomas Cook’s online business or any of its UK tour operators, will have more than 1,200 shops and will be the second largest foreign exchange player in the UK behind the Post Office.
The savings target will be achieved at a cost of £30m and will involve some shop closures and the combining of IT systems and back-office functions.
“There will inevitably be some job losses but we’re going to keep those to a minimum,” said Fontenla-Novoa. “Both brands will be retained and that’s why we don’t think there will be many store closures because both brands coexist on the high street next to each other.”
Shore Capital analyst Greg Johnson said he expects further consolidation across most source networks for Thomas Cook and larger rival TUI Travel.
Thomas Cook will own 70% of the new company, whose results will be fully consolidated within its accounts and which will add to its earnings from the first full-year of operation, before integration costs.
Fontenla-Novoa will be Chairman of the new group and Thomas Cook’s UK Head Ian Derbyshire will serve as CEO.
The Co-operative Group, the UK’s largest mutual retailer with 5.5 million members, will appoint two directors to the board.
The Midlands Co-operative, the second-largest in the country, will also join the new company at a later date, bringing in a further 103 shops. It will hold a 3.5 per cent stake, to be taken from the Thomas Cook share of the business.