Thomas Cook Thomas Cook in £750m rescue deal talks with biggest shareholder
Chinese investor Fosun would get majority stake in travel firm’s tour operator business
The struggling travel company Thomas Cook is in talks over a £750m rescue deal that would hand control of its 178-year-old package holiday business to a Chinese investor.
The company confirmed on Friday it was in “advanced discussions” to secure new funding from its banks and the Shanghai-based conglomerate Fosun, which owns Wolverhampton Wanderers FC and the holiday resort chain Club Med.
Fierce competition from online rivals, together with one-off factors such as last summer’s heatwave and Brexit uncertainty, have hindered the debt-laden tour operator’s recovery from near-collapse in 2011. The £750m cash injection is designed to see the company through the winter, when holiday bookings are at their lowest, affording it time to cut costs and raise money by selling its airline division.
The deal will also whittle down its £1.6bn debt mountain, some of which lenders have offered to forfeit in exchange for shares in the business.
The chief executive, Peter Fankhauser, said customers who had booked with Thomas Cook had no reason to fear any impact on flights or holiday bookings.
However, he warned it would be up to Fosun to decide whether any of the company’s 21,000 staff would lose their jobs, or whether any of its high-street shops, 567 of which are in the UK, would close.
“Today’s announcement is really about a plan that ensures the business to continue to trade and operate as normal, and the deal preserves our brand,” he said. “So that is principally really good news for our employees.”
He said that given the sensitive nature of talks with Fosun, Thomas Cook had not yet spoken to trade unions, but would now begin that process.
The cash injection would give 18% shareholder Fosun a majority share in the company’s package holiday business whose roots go back to 1841, when cabinet-maker Thomas Cook began organising travel for fellow members of the temperance movement to attend meetings.
Fosun will also get a minority holding in Thomas Cook Airlines, which is likely to be sold. The deal will significantly reduce the value of shares held by other investors, which resulted in the firm’s shares falling 59% on Friday to a new record low of 5.4p.
The bailout replaces a plan drawn up by Thomas Cook’s lenders in May, under which they would have ploughed £300m into the business. At the time, one City analyst responded to the plan by branding the shares practically worthless, due to the eventual likelihood of a deal much like the one announced on Friday.
Thomas Cook was in need of new money after running up a £1.5bn loss in the first half of the financial year, mostly due to a £1.1bn cut in the estimated value of its package holiday division, which has been wrestling with dire trading conditions.
An influx of online competitors has intensified competition and led to oversupply across Europe, forcing tour operators to cut prices.
Brexit, bargains and Boeing: factors affecting the summer holiday market
The effect has been exacerbated by last summer’s heatwave, which convinced customers across Europe to stay at home. The UK market, Thomas Cook’s second biggest after Germany, has been further hit by a fall in the value of sterling since the EU referendum and flagging consumer confidence amid Brexit uncertainty.
At the same time, high jet fuel prices and inflation in hotel prices have pushed up Thomas Cook’s costs. The effect of lower income and higher costs has rendered interest payments on its debt unsustainable.
The 178-year-old company said on Friday that the European travel market had become even more challenging in recent months.
Taking a majority stake in Thomas Cook would expand Fosun’s existing presence in Europe. The conglomerate bought the holiday resort chain Club Med in 2015 for €939m (£844m), and acquired the Premier League football club Wolverhampton Wanderers for £45m in 2016.
A spokesperson for Fosun said: “Fosun is a shareholder in Thomas Cook because it is a British company operating in the global travel industry, in which we have extensive experience. We are committed investors, with a proven track record of turning around iconic brands including ClubMed and Wolverhampton Wanderers FC.”
Fankhauser said: “After evaluating a broad range of options to reduce our debt and to put our finances on to a more sustainable footing, the board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our longstanding shareholder Fosun and our core lending banks.
“While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees.”
- Share on Facebook
- Share on Twitter
- Share via Email
- Share on LinkedIn
- Share on Pinterest
- Share on WhatsApp
- Share on Messenger