First Choice and Kuoni are busymaking plans for their ú1.5bn merger but, as Travel Weekly editorJeremy Skidmore explains, the City would prefer a different result.
Advantages of First Choice/Kuoni merger:
lBusinesses is ‘complementary’
lShared culture
lSignificant European player
First Choice and Kuoni have been meeting city analysts to explain their plans for a ú1.5bn merger, in which First Choice would hold 47% and Kuoni 53% of a new company(Travel Weekly, March 15).
There has been much talk of shared cultures, complementary businesses and the creation of a significant player which can compete on a European footing.
Many in the city have not shared their enthusiasm. On the day First Choice and Kuoni met analysts, the First Choice share price fell 14.5p to 173p and had slipped further by the time Travel Weekly went to press.
This is partly because many in the city feel First Choice shareholders would be better off teaming up with one of the three giants in the UKmarket and there is still time for a rival bid.
Thomson is thought least likely to make such a move because a combined Thomson/First Choice market share would probably lead to a Monopolies and Mergers Commission investigation and, in any case, Thomson needs to concentrate on expanding overseas.
But the city believes there are compelling reasons why Airtours should repeat its 1993 raid for First Choice, which was then called Owners Abroad.
There are similar arguments for a Thomas Cook/First Choice deal, although this is thought less likely because Thomas Cook already has a lot on its plate managing the merger with Carlson.
According to current estimates, if First Choice was bought out by either Airtours or Thomas Cook, the new group would make around ú30m of cost savings. There are few savings to be had from the First Choice/Kuoni deal and the statement that their businesses are “complementary” simply means that both parties have different products to bring to the table.
Analysts point out that a further attraction of an Airtours/First Choice deal would be that it would help sort out the Helmshore operator’s problems in Canada. First Choice has critical mass in Canada, which is vital for success.
One city analyst added that a successful Airtours bid for First Choice would make the company big enough to enter the FTSE 100. This would lead to a huge demand for its shares – one analyst predicted Airtours share price could hit ú6.50 overnight.
Then there’s the thorny issue of the role of First Choice group chief executive Peter Long, rated as one of the best tour operator bosses around.
There have been raised eyebrows over Long’s position as only one of a board of 14 under the planned First Choice/Kuoni merger. Some feel that he could form a formidable partnership with Airtours chairman David Crossland or add considerable experience to the team led by Thomas Cook chief executive John Donaldson.
Whether a new supergroup of Airtours/First Choice or Thomas Cook/First Choice would be referred to the Monopolies and Mergers Commission is debatable. After the inevitable loss of some market share through merging, the new group would become market leader, but may have little more than Thomson’s current market share in the UK of around 28%. Furthermore the new group could argue that other modes of transport such as low-cost, no-frills carriers have to be taken into the equation when working out market share.
The question is whether Airtours or anyone else has the desire to make a bid for First Choice, whose chairman Ian Clubb admitted he was in talks with other companies before teaming up with Kuoni. Airtours is monitoring the situation very closely and gauging the views of First Choice shareholders. The next few weeks could be very interesting.
Advantages
of an Airtours/First Choice deal:
lCost savings around ú30m
lBecomes number one group in the UK
l Solves problems in Canada
l Puts Airtours into the FTSE 100