Thomas Cook enlists China’s Fosun to salvage business
British group in talks over rescue of package-tour unit
Thomas Cook is negotiating a £750m rescue that will give Fosun Tourism, its biggest investor, control of the British group’s package-tour business, in a blow to other shareholders.
The company’s shares fell more than 45% to their lowest level on news of the proposal, which would give Club Med owner Fosun a minority stake in Thomas Cook’s airline business.
“This comes at a cost, with a significant dilution for existing shareholders,” said CEO Peter Fankhauser, adding it was a “responsible solution to secure the future of the Thomas Cook business and brand”.
Fosun, co-founded by billionaire Guo Guangchang and one of China’s biggest conglomerates, has spent billions of dollars over the past decade on health care, tourism and fashion firms in the US and Europe.
“We are committed investors, with a proven track record of turning around iconic brands including Club Med and Wolverhampton Wanderers FC,” Hong Kong-listed Fosun, which already owns an 18% stake in Thomas Cook, told Reuters.
Thomas Cook said the cash from the proposed deal, which would mark one of the most significant purchases of a British company by a Chinese group in years, would be enough for it to trade over the winter season and give it flexibility to invest.
The world’s oldest travel company, which has been hit by fading demand for its package holidays, high debt and a hot 2018 summer in Europe, has also been weighing approaches for its airline business and Nordic operations.
Fankhauser said the sale of the airline business has been paused while Thomas Cook focuses on the refinancing, adding it is “too early to speculate on what will happen on the airline review.”
The proposal, which is subject to due diligence and further talks, will see a significant amount of Thomas Cook’s debt, which Refinitiv data shows stands at £1.8bn, converted into equity, almost wiping out existing shareholders.
Fankhauser said the proposed deal with Fosun and lenders would put the firm on a “totally different financial footing” with “massively reduced debt levels”.
Analysts said Thomas Cook’s predicament showed how businesses needed to be careful with their balance sheets, particularly in sectors with unpredictable costs and earnings.
Fankhauser said the group had paid £1.2bn in interest and refinancing costs on about £1.6bn of debt since 2012. “Every year we have to sell three million holidays before we have our interest burden paid,” he said.
Other tour operators are also facing challenges and in May Anglo-German rival TUI reported deeper first-half losses due to airline overcapacity for Spain and the grounding of its Boeing 737 MAX planes.
Shares in Thomas Cook were trading down 46% at 7.1p on Friday, valuing its equity at £109m.
The 178-year-old company had seen its market value drop from about $4bn when it made its debut on the London market in June 2007, as weak demand led to increased promotional activity and earlier discounting than usual.
The holiday firm’s tour business had 11-million customers in 2018 and produced £7.4bn in revenue. Its higher-margin airline business including German carrier Condor had revenue of £3.5bn.