First Choice takes off on MyTravel talks

Shares in First Choice Holidays jumped 13 per cent yesterday as the tour operator said it is in talks over a possible sale of its package holiday operations to rivals including MyTravel.

The unit, which could fetch £500m, accounts for almost half of First Choice's profits and the MyTravel board made the approach saying it would deliver significant value to shareholders at both firms.

However, First Choice said it was talking to other companies. Those understood to be eyeing the business, which has 2.5 million customers and more than 300 branches, include Germany's Tui, and Thomas Cook.

Shares in First Choice jumped 13 per cent to 257p yesterday as investors prepared for a potential bidding war, while MyTravel rose 7 per cent to 214p.

The package holiday market has been hit by fierce competition from low-cost airlines and internet operators. First Choice has been buffering itself against the downturn by focusing on speciality and activity holidays with brands such as Sunsail, Trek America and Exodus.

Gert Zonneveld, analyst at Panmure Gordon, said the group has "made substantial progress ... in changing its business mix, reducing its exposure to committed accommodation and building attractive positions in new markets".

"A disposal of the mainstream business would further reduce the company's risk profile and increase the company's 'war chest'," he added. "Alternatively, First Choice could return some capital to its shareholders."

MyTravel was on the brink of collapse in 2003 after its debts topped £1bn. Since then chief executive Peter McHugh has reshaped the group, which is expected to move into the black this year for the first time since 2001.

Any deal is likely to attract the attention of competition authorities. A bid for MyTravel's predecessor Airtours by First Choice was blocked in 1999.