Thomas Cook has bought package holiday firm MyTravel, creating the second largest package holiday firm in Europe, with combined annual revenues of £8bn.
The travel group, which will be based in the UK, will be 52% owned by KarstadtQuelle, the German retailer that owns Thomas Cook, and will trade under that name.
MyTravel shares soared 71p, or 30%, to 309p in response to the deal. Both companies have dropped any plans to takeover UK package holiday rival First Choice, leaving the way clear for Virgin to make a move.
The two companies will save £75m per year in costs, with Thomas Cook CEO Manny Fontenla-Novoa saying that job cuts are likely. Thomas Cook and MyTravel employ 19,000 people in the UK.
Package holiday firms have suffered recently from online competition, as customers have taken advantage of the savings to be made when booking holidays online.