The Competition Commission has given the go-ahead to Thomas Cook’s retail merger with The Co-operative Travel and Midlands Co-operative.
The Commission gave the green light this morning, saying the merger could proceed “without remedies” – without the disposal of any outlets – to create a chain of 1,200-plus shops.
The finding is provisional, but the outcome is highly unlikely to change when the Commission issues its final report in August.
Thomas Cook expressed delight, welcoming the Commission’s conclusion that the merger would not diminish competition.
Thomas Cook chief executive Manny Fontenla-Novoa said: “This is not only great news for Thomas Cook and the Co-operatives, but also for our customers and staff. We look forward to bringing the merged business to life.
“High street retail remains an important distribution channel for package holidays and one that consumers value. We firmly believe in the synergistic nature of this deal and the opportunities it offers. This merger is just one part of the plan to strengthen our UK business.”
Co-operative Group chief executive Peter Marks said: “We are delighted. We’re sure the joint venture will deliver significant benefits for our customers and members.”
In a joint statement, the companies noted: “The merger will consolidate the parties’ high street networks and provide a broader distribution base.”
The deal brings together Thomas Cook’s 780 shops with The Co-operative Travel’s 360 stores and Midlands Co-operative’s 100 outlets. Thomas Cook’s online travel agency and tour operator businesses are not included.
The joint venture will be majority-owned by Thomas Cook, which will pay a guaranteed dividend of £10 million a year to the Co-operative Group.
Independent business owners contacted by Travel Weekly were broadly positive about the merger. Balwins Travel general manager Peter Ruck said: “There may be an opportunity for us to take business from people who don’t want to deal with a multiple.”
Advantage chief executive John McEwan said the deal could see the consortium’s agents develop even stronger ties with independent tour operators.
He said: “The vertically integrated model means [Co-op] will sell more Thomas Cook products, and that might impact on the level of sales of independent operators over time. This is where we can step in and offer more support.”
Thomas Cook and the Co-operative groups announced the merger last October, expecting the deal to be completed by the end of the year. But the Office of Fair Trading requested a referral from the European Commission and, in turn, referred the case to the Competition Commission in March.
The Commission was charged with deciding whether the acquisition might result in a “substantial lessening of competition” in the UK. In advance of taking evidence from others in the industry, the Commission noted at least four ways in which a lessoning of competition might occur:
- Loss of rivalry in local areas
- Loss of competition nationally or regionally
- Joint-venture agents favouring Thomas Cook holidays
- Thomas Cook limiting access to holidays for other agents
Competition Comission deputy chairman Laura Carstensen, who chaired the inquiry, said: “We have focused on the effect the joint venture will have on customers buying package holidays. We conducted a survey of customers in those areas most likely to be affected. Whilst the Internet is clearly a choice for many independent holidaymakers, the majority of these customers prefer to book package holidays through high street travel agents.
“Our analysis suggests the extent to which travel agents respond competitively to nearby rival outlets, particularly through use of discounts, and their ability to ‘flex’ prices at a local level, are quite limited.
“Our assessment of competition between travel agents at regional and national levels suggest the joint venture’s incentives to increase prices, or worsen other aspects of their retail offer, was likely to be even weaker than at a local level.
“We also looked at the effect of Co-op and Midlands outlets favouring Thomas Cook package holidays over those from other providers – or the possibility that the joint venture might block or hinder other agents from selling Thomas Cook holidays. We found that the additional promotion of Thomas Cook package holidays would make a limited difference.
“The threat of the growth of rivals … and the increasing role of the internet further reduce the scope for price rises over time.”
The Competition Commission is expected to publish its final report by August 16, allowing the deal to be completed by the end of Thomas Cook’s current financial year.
The news could hardly have come at a better time for Thomas Cook after a profit warning last week triggered a slump in its share price. Thomas Cook shares held steady yesterday ahead of this morning’s announcement, having risen 2% on the London Stock Exchange on Tuesday.
Cook Co-op merger: Key moments
October 2011: Merger announced
February 2011: Fast-track bid
May 2011: Scope of review established
June 2011: Manny defends deal at ITT Conference