German-owned holiday firm Thomas Cook is to buy British package holiday rival Mytravel.
In a deal worth around £2.8 billion, Thomas Cook will hold 52 per cent of the new entity with the other 48 per cent controlled by Mytravel's shareholders.
The deal, which will create the largest travel company in Europe, is due to be completed by June.
Mytravel chief executive Peter McHugh said the deal would create a company with annual revenue of around £8 billion.
The new firm will be headquartered in London and listed on the London Stock Exchange.
The companies said they expected to make cost savings of £75 million a year from combining the two businesses, although it will take at least two years for the cost savings to come through.
As a result of the merger, the companies said they had ditched plans to take over the mainstream package holiday business of British competitor First Choice.
Mytravel shares jumped more than 30 per cent to a record 317.5 pence before easing back to 302.5 pence.