BIG PICTURE

London/Duesseldorf, Germany, Feb. 12 (Reuters): German-owned Thomas Cook will buy British package holiday rival MyTravel, the companies said on Monday, creating a new company worth about £2.8 billion ($5.45 billion).

Thomas Cook, which is owned by stores group KarstadtQuelle, will hold 52 per cent of the new entity, with the other 48 per cent controlled by MyTravel’s shareholders. The new company, to be called Thomas Cook Group Plc and listed on the London Stock Exchange, would be worth around £2.8 billion, according to Monday’s share prices.

Following the merger, the companies said they had ditched any plans to take over the mainstream package holiday business of British competitor First Choice’s.

MyTravel shares jumped more than 30 per cent to a record 317-1/2 pence before easing back to 302-1/2 pence, while KarstadtQuelle rose almost 3.5 per cent to 27.11 euros.

Shares in First Choice dropped sharply and were down 16.8 per cent at 253-3/4 by 0820 GMT.

The deal is expected to be completed by June and the new firm is to be headquartered in London.

Thomas Middelhoff, KarstadtQuelle's chief executive and chairman of Thomas Cook, will chair the company, while MyTravel chairman Michael Beckett will act as deputy.

MyTravel and Thomas Cook said they expected to make cost savings of £75 million ($146.1 million) a year from combining the two businesses although it would take at least two years for the cost savings to come through.

The package holiday industry has seen a general decline in recent years as growing numbers of holidaymakers piece together their own trips using the Internet and low-cost airlines.

Package holiday firms are now looking to counter this decline by scaling up their businesses to make cost savings, as well as branching into growing leisure markets such as cruises.

Formerly known as Airtours, MyTravel made a disastrous dash for market share and came close to collapsing under the weight of its debts in 2003 when leisure markets turned down.

The company, which runs Going Places travel agents, has battled back by cutting costs, closing shops and reducing the number of holidays it sells.