Two of the biggest names in the coach tour business have announced plans to join forces in a £200m deal.

Coach Holiday Group (CHG), which owns Wallace Arnold, and Shearings are to merge to form one of Europe's largest coach holiday companies, CHG shareholder 3i said.

Wallace Arnold operates coaching holidays from all over the North-East and Yorkshire.

The merger will create a company with a combined annual passenger count of nearly one million, a database of more than 2.5 million people and more than 3,400 staff, 3i said.

The deal remains subject to approval by the Office of Fair Trading. If it gets the go-ahead, 3i will have a 67.8 per cent stake in the group and management will hold 32.2 per cent, of which a proportion is intended for an employee share option scheme.

Shearings' managing director John Slatcher described the proposed deal as a transforming step for both companies.

CHG is the parent company of holiday brands including Wallace Arnold, National Holidays and Caledonian Travel. The new company will target the affluent and growing over-55 age group, offering a mix of coach, air and hotel holidays to more than 170 destinations throughout the UK and Europe.

It said the merger would offer a greater choice of destinations and improved levels of service from coach pick-up points.