TUI and First Choice create…

Saturday, 24. March 2007, 08:36

Another mega-merger in the tourism business. TUI and Britain’s First Choice announced today they will merge their tourism activities into a joint venture, TUI Travel PLC. TUI will hold 51% in the stock exchange-listed company.

Just weeks after Thomas Cook and MyTravel announced the biggest merger in the European travel industry for years, TUI has upstaged its German rival with an agreement to merge its travel business with Britain’s First Choice. The deal creates an enlarged European market leader with turnover of some €18 billion, substantially ahead of the future Thomas Cook PLC (€12 billion). After weekend negotiations, the plan was presented by TUI chairman Michael Frenzel and First Choice CEO Peter Long, who will head the new company, at a news conference in Hamburg.



Based on 2006 figures, TUI Travel PLC will have annual revenue of some €18 billion, EBITA of around €475 million and some 27 million customers. Under the deal, TUI will transfer its tourism division, excluding its hotel activities, into a newly-founded company that will then buy First Choice. The transaction will be financed by a share exchange, leaving TUI with 51% and existing First Choice shareholders with 49% in the new TUI Travel PLC. This company will be headquartered in the UK and will be floated on the London stock exchange. The deal was approved by the TUI supervisory board on Sunday, and is now subject to approval by the existing shareholders of First Choice and the relevant anti-trust authorities.



Chief Executive Officer designate of the new company is Peter Long, currently Chief Executive of First Choice. TUI chairman Michael Frenzel will be chairman of the board of directors and First Choice chairman Sir Mike Hodgkinson will be the Non-Executive Deputy Chairman. Other members of the 17-strong board will include Peter Rothwell (Deputy Chief Executive), Paul Bowtell (Chief Financial Officer), Will Waggott (Group Commercial Director), Christoph R. Mueller (Aviation Director) and Volker Böttcher (Managing Director Central Europe). This combination means that all operative divisions will be represented on the TUI Travel board.



“We are creating one of the most profitable and efficient tourism groups in the world“, said Michael Frenzel. “At just the right time two strong partners are joining forces: TUI Travel PLC is clearly aiming at growth and simultaneously will make good use of the opportunities presented by the ongoing consolidation in the European travel market.” The different strengths of the two partners represent an excellent fit, Peter Long stressed. “TUI is clearly the market leader in traditional beach package holidays. And over the past few years First Choice has successfully expanded in the modular travel segment and in certain niche markets, and in doing so has achieved above average returns. Both partners will benefit from the know how of the other.” Although TUI is much larger than First Choice, the British firm has a much better profit margin of 5% thanks to its focus on profitable niche products.



TUI Travel PLC is aiming for synergies worth €146 million over the next three years. These will mostly be in the British market and will be achieved through joint administration, a joint fleet and flight planning for the airlines, a common IT infrastructure and a more efficient use of marketing instruments. TUI and First Choice said they could not yet say how many jobs would be lost in the UK as a result of the merger. In Britain, Thomsonfly has 34 jets while First Choice Airways has 32 planes, and has ordered B787 Dreamliners for long-haul flights. TUI UK has some 750 travel agencies while First Choice has 300 travel shops and 38 holiday hypermarkets.  Jobs in Germany will not be directly affected by the merger.



Following the merger, the established First Choice brands in Britain would be retained while its small continental European subsidiaries would be merged into TUI’s continental European organisation, said Peter Long. These include Turkey specialist Nazar (Germany, Austria, Switzerland, Scandinavia) and Mamara (France). First Choice is also active in North America through Intrav, which it bought from Kuoni.



First Choice put its mainstream package holiday business up for sale several months ago, attracting interest from Thomas Cook, MyTravel and the Virgin Group. But it then postponed this following the merger agreement between Thomas Cook and MyTravel. TUI stepped in several weeks ago to start negotiations but focused on a cash-free merger rather than an expensive acquisition.