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Thomas Cook to Merge U.K. Travel Unit With Co-op

Oct. 8 (Bloomberg) -- Thomas Cook Group Plc and the Co-operative Group Ltd. plan to merge their U.K. travel and foreign-exchange units in a deal that will create a 1,200-store chain and save more than 35 million pounds ($55 million) a year.

The combined business will be the U.K.’s largest travel retailer and the second-biggest provider of retail foreign exchange, the companies said today in a statement. Thomas Cook will initially own 70 percent, and the Co-operative 30 percent. No cash will be initially exchanged in the transaction.

“This is probably the last consolidation opportunity in the sector,” Thomas Cook Chief Executive Officer Manny Fontenla-Novoa said on a conference call.

Thomas Cook rose 3.4 percent in London trading, paring the stock’s decline this year to 19 percent. The company said last month it was seeking “substantial” cost savings to counter a difficult market in the U.K., where consumer confidence is sliding amid pessimism on personal finances and the economy.

“Today’s deal is a neat solution to addressing the cost base in the U.K.,” Nick Batram, an analyst at KBC Peel Hunt in London, said in a report. He rates Thomas Cook shares “buy.”

Expenses will be reduced by combining headquarters and back-office functions and consolidating information-technology systems, the companies said. Some outlets will be shut, though closures will be kept to a minimum, the executives said.

Job Cuts

Job cuts will be in the “hundreds, not thousands,” Fontenla-Novoa told Bloomberg TV. The two businesses employ about 9,000 people between them, he said on the conference call.

The cost of delivering the savings will be about 30 million pounds, according to the statement.

A further 103 shops will be added to the combined business when Midlands Co-operative joins as a shareholder, taking a 3.5 percent stake out of Thomas Cook’s portion, Fontenla-Novoa said. Ian Derbyshire, Thomas Cook’s U.K. CEO, will head the new company and will have a deputy from the Co-operative Group.

The Co-operative Group, the world’s biggest consumer-owned co-operative, said in August its first-half travel sales declined 6.6 percent to 126 million pounds, and profit dropped 70 percent to 400,000 pounds following a volcano eruption in Iceland and strikes at British Airways Plc.

The Co-op, which has more than 5 million members, is the U.K.’s fifth-biggest food retailer, biggest funeral-services chain, biggest farmer, and the third-largest pharmacy retailer.

The shares gained 6.1 pence to 185.7 pence as of the 4:30 p.m. close of trading in London.

The merger doesn’t include any of Thomas Cook’s online travel operations or U.K. tour businesses, the companies said.

If dividend payments to Co-operative are less than 40 million pounds after four years, Thomas Cook will make up the difference, the companies also said.

To contact the reporters on this story: David Altaner at daltaner@bloomberg.net; Armorel Kenna in Milan at akenna@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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