Jobs are at risk as the UK’s largest high street travel agency chain is being formed through a tie-up between Thomas Cook and The Co-operative Group.
Each company will contribute their entire retail travel estates in the UK, comprising 803 and 401 shops respectively, together with their foreign exchange and cruise operations.
In addition to its retail shops, The Co-operative Travel will bring its home working business with 345 staff, its national corporate travel business, its web and call centre operations and Freedom Travel, its franchise group which serves 148 members.
The merged entity will not include Thomas Cook’s online travel business, ThomasCook.com, or any of its UK tour operating businesses.
Thomas Cook will have 70% of the shares in the new company and The Co-operative Group will have a 30% shareholding. There will be no cash consideration at completion, the two companies said.
Savings of around £35 million a year will be made as a result of the merger.
This will predominantly come from cost reductions including the combination of headquarters and back-office functions, the consolidation of IT systems, some shop closures and the streamlining of supplier contracts.
“The cost to the merged entity of delivering these synergies is expected to be approximately £30 million,” a statement said.
“Increased product sales through higher in-house distribution are expected to lead to at least £10 million of additional upstream synergies within the Thomas Cook Group.
Assuming the transaction closes in December 2010, both the merged entity and the upstream synergies should be fully achieved in the financial year ending 30 September 2012.
The cuts are expected to be completed in the financial year ending September 30, 2012 with the deal due to be completed by December this year.
The companies estimate that the two retail businesses will deliver operating profit of £12.4 million and £100,000 for the 12 months ending September 30, 2010 and January 1, 2011 respectively.
High street consolidation
By leading the UK high street travel agency consolidation, Thomas Cook and The Co-operative Group say they are creating the UK’s largest high street travel retailer and the second largest provider of retail foreign exchange.
Under the merger, Thomas Cook and The Co-operative Travel will have a combined base of 4.3m customers.
The Midlands Co-operative will join as a shareholder with Board representation in “due course”, bringing in a further 103 shops.
Thomas Cook will increase the in-house distribution of its mainstream package holidays and, together with the expansion of its online travel agency, strengthen its multi-channel proposition to customers.
Over time, the merger provides significant opportunity to drive additional sales of Thomas Cook’s mainstream and independent travel products through all of The Co-operative Travel’s shop network. In addition, the merger will enable Thomas Cook to optimise the cost base of its high street retail operations, the companies said.
Thomas Cook Group CEO, Manny Fontenla-Novoa will serve as chairman, Cook UK business CEO Ian Derbyshire will serve as CEO and Paul Hemingway from Co-operative Travel as finance director.
Cook will appoint three Directors to the board, including the chairman, and The Co-operative will appoint two directors.
Implementation of the merger is conditional on anti-trust clearance and certain other conditions. Completion is anticipated in December 2010.
‘A firm foundation’
Fontenla-Novoa said: “This transaction represents a significant consolidation opportunity in the UK travel market and, by joining forces, we will create the country’s largest high street travel network and reach a far wider customer base.
“By consolidating the high street in tandem with delivering on our existing e-commerce targets, we are realising our strategic aim to increase in-house distribution and strengthening our proposition to consumers.
“Today’s announcement, together with our plans to cut costs and streamline the rest of our UK business, will put us in a much stronger position, should market conditions in the UK remain weak, and will build a firm foundation for the future. For our shareholders, this transaction will deliver synergies, be earnings accretive and unlock significant value for no initial cash consideration.”
Co-operative Group chief executive CE Peter Marks added: “This is a marriage of two of the industry’s most trusted brands – The Co-operative and Thomas Cook.
“And, it comes at a time when consumer confidence in the travel sector, like the economy, is in need of a boost.
“Through our new found scale we will secure a profitable and successful business together, which will be good for our people and our members.
“Our customers will also benefit as we work to ensure that the merger leads to enhanced value in the holidays that we offer.
“It also offers excellent opportunities for the further development of the Co-operative Travel brand both on the high street and other channels to market
“This deal is in line with The Co-operative Group’s wider strategy to grow its business through merger and acquisition and when opportunities exist, to link with like-minded brands which share our values so as to improve our offer to our customer members through the additional scale benefits they can bring.”