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Thomas Cook Group (TCG)

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Friday 08 October, 2010

Thomas Cook Group

UK High Street Travel merger

RNS Number : 0851U
Thomas Cook Group PLC
08 October 2010

8 October 2010


Thomas Cook Group and The Co-operative Group Agree Landmark Deal to Create the UK's Largest High Street Travel Network


Thomas Cook Group plc and The Co-operative Group announce today that they have agreed a merger of their high street travel and foreign exchange businesses. 


Today's agreement reinforces Thomas Cook's strategy to strengthen the competitive position of its UK business and enhances the Co-operative Travel brand in line with The Co-operative Group's overall strategy to offer a better service to its customers and members.  The deal will:


·      Create the UK's largest high street travel network with over 1,200 shops and an enhanced position in foreign exchange


·      Increase in-house distribution of Thomas Cook's own travel products from 69% to around 80% and provide significant opportunity to drive additional sales through the combined network


·      Unlock estimated synergies of at least £35m in the merged entity


·      Drive further upstream synergies in Thomas Cook's mainstream and independent businesses of £10m


·      Leverage Co-operative Travel's brand by rebranding Thomas Cook's Going Places shops


·      Create a new company to be 70% owned by Thomas Cook and 30% by The Co-operative Group


·      Be transacted for no initial cash consideration



This landmark deal delivers a strategic consolidation of the UK high street travel market, combining two of the industry's strongest and most complementary travel brands and distribution networks to reach out to a wider customer base than either company could achieve independently.  


By leading the UK high street consolidation, Thomas Cook and The Co-operative Group will create the UK's largest high street travel retailer and the second largest provider of retail foreign exchange.  


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.


For The Co-operative Group, the merger will give it an even stronger foothold in the travel sector, giving greater scale to a business that is very popular with its customers and members.


Under the merger, Thomas Cook and The Co-operative Travel will have a combined base of 4.3m customers.  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 colleagues, 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,, 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. 


It is anticipated that the merger will result in synergies in excess of £35m per annum, predominantly 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 £30m.  Increased product sales through higher in-house distribution are expected  to lead to at least £10m 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.


It is estimated that Thomas Cook and The Co-operative Travel's retail businesses will deliver operating profit of £12.4m and £0.1m for the twelve months ending 30 September 2010 and 1 January 2011 respectively.  The merged entity should be cash positive throughout the year and generate interest income.  For Thomas Cook, the merger will be cash generative and earnings accretive from the first full year of operation, before integration costs. 


The parties have agreed that, from inception of the new company, Thomas Cook Group CEO, Manny Fontenla-Novoa will serve as Chairman, Ian Derbyshire will serve as CEO and Paul Hemingway as Finance Director.  Ian is currently CEO of Thomas Cook's UK business and Paul is Finance Director of Co-operative's Travel and Specialist Retail businesses.  Thomas Cook will appoint three Directors to the Board, including the Chairman, and The Co-operative will appoint two of the Directors.  Most Board decisions will be taken by simple majority and the merged entity will be fully consolidated in Thomas Cook's financial results.


The merger is structured so that the Midlands Co-operative will join as a shareholder with Board representation in due course, bringing in a further 103 shops.  A term sheet has been signed and final documents are expected to be executed shortly.


Implementation of the merger is conditional on anti-trust clearance and certain other conditions. Completion is anticipated in December 2010.


Thomas Cook Group Chief Executive Officer, Manny 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."

The Co-operative Group, Group Chief Executive, Peter Marks said: "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."


Conference call for investors and analysts


A conference call for investors and analysts will take place today at 8am (UK time).  A presentation to accompany the conference call can be downloaded at Dial-in details for the call are as follows:


Dial-in number               +44 (0) 20 3003 2666

Conference name           Thomas Cook Analyst Call


Replay dial-in                 +44 (0) 20 8196 1998

Access number             6316056#


The replay will be available for 7 days





For further information, please contact:


Thomas Cook Group plc

Investor Relations

+44 (0)20 7557 6412

     Manny Fontenla-Novoa, CEO

     Paul Hollingworth, CFO

Media enquiries

+44 (1) 1733 417268

     Bronwen Griffiths-Barrasso


Faeth Birch

+44 (0)20 7251 3801

The Co-operative Group

Media enquiries

     Martin Henderson

+44 (0)7525 389081

     Phil Edwards

+44 (0)7770 925957

Tulchan Communications

Susanna Voyle / Lucy Legh

+44 (0)20 7353 4200



1.  For the year ended 30 September 2009, Thomas Cook's businesses within the scope of the merger had net revenue of £264m, p.e. EBIT of £12m, PBT of £17m and gross assets of £93m.  (Revenue and profit figures have been adjusted to reflect revised commercial terms that apply to the new entity).


2.  For the year ended 2 January 2010, The Co-operative's businesses within the scope of the merger had net revenue of £94m, p.e. LBIT of £3 m, LBT of £4m and gross assets of £39m. 

3.  It is intended that the merger remains in existence for the long-term, although from the fifth year onwards, The Co-operative has an option to put its shares to Thomas Cook for a consideration of 4.0x EBITDA, whilst Thomas Cook has an option to call the shares owned by The Co-operative for a consideration of 5.0x EBITDA and in such case Thomas Cook will be able to utilise The Co-operative Travel brand for a further 2 years after exit.  In the event that, after the first four years of the merger, total dividend payments to the Co-operative are less than £40m, Thomas Cook will make a payment to The Co-operative to cover the shortfall.


4.  For the year ended 23 January 2010, the Midland Co-operative's travel businesses within the scope of the merger had p.e. EBIT of £1m.



About Thomas Cook Group plc


Thomas Cook Group plc is one of the world's leading travel groups with FY 2009 sales of £9.3 billion and 22.1 million customers.  The Group operates under five geographical segments in 21 countries, and is number one or two in all its core markets.  Its business is supported by 31,000 employees, a fleet of 94 aircraft and a network of over 3,400 owned and franchised travel shops.



About The Co-operative Group


The Co-operative stands apart from other major retailers in the UK as a business which is owned, not by a small group of shareholders, but by more than five million consumer members.  With core interests in food, financial services, travel, pharmacy, funerals and farms, it has an annual turnover of £13.5 billion, employs 120,000 staff and operates over 5,000 retail trading outlets handling more than 20 million weekly transactions.  It also supplies products and services to a consortium of more than 148 independent travel agents.

This information is provided by RNS
The company news service from the London Stock Exchange