Thomas Cook Group today confirmed being in “advanced discussions” that would see its tour operating arm taken over by Chinese investment firm Fosun in a £750 million deal.
The rescue deal would see the company effectively broken up.
“The recapitalisation proposal will require a reorganisation of the ownership of the tour operator and airline businesses which is expected to result in Fosun owning a significant controlling stake in the group tour operator and a significant minority interest in the group airline,” the travel group said on Friday morning.
Podcast: What next for Thomas Cook?
“The proposal envisages that a significant amount of the group’s external bank and bond debt will be converted into equity, to be agreed following discussions with financial creditors.
“The group’s core lending banks are supportive of a recapitalisation and are engaged in constructive discussions with the group to agree terms. The proposed recapitalisation will not impact trade creditors.”
The restructuring of Cook will salvage the future of the company following a series of profit warnings.
Shares in Cook have slumped by more than 80% over the past 12 months amid fears that a £1.6 billion debt mountain could threaten its survival.
The new money will provide “sufficient liquidity” to trade through the winter 2019-20 low season “and the financial flexibility to invest in the business for the future”.
The company said: “This announcement results from the strategic review of the group airline announced in February 2019, and subsequent approaches for the tour operator.
“Since commencing the review, the operating environment in the European travel market has become progressively more challenging. This has impacted the group’s underlying financial position and its ability to execute a disposal of the airline or the tour operator, either in whole or parts, in a way which returns satisfactory value to the group and its stakeholders.
“As a result, the board has concluded that it is in the best interests of all the group’s stakeholders to pursue a full recapitalisation of the group supported by new investment into the business.”
More: Chinese group would retain Thomas Cook name [June 19]
Comment: What now for Thomas Cook? [July 5]
Comment: Can Thomas Cook survive? [May 19]
The strategic review of the group airline is paused, pending the outcome of the recapitalisation.
“The recapitalisation plan would ultimately replace the commitment of the £300 million facility agreed in May 2019,” Thomas Cook added.
“The group has also engaged in constructive discussions with bonding providers, and other critical financing partners to enable it to operate its business as usual through to the completion of the recapitalisation.”
Chief executive Peter Fankhauser said: “After evaluating a broad range of options to reduce our debt and to put our finances onto 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 long-standing 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.”
Fosun, a shareholder in Cook since 2015 and owner of Club Med, is understood to see the UK group as a key platform for further expansion into the European travel sector.
A Fosun Tourism Group spokesman 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 Club Med and [football club] Wolverhampton Wanderers.”
Welcoming the proposed investment, Brian Strutton, general secretary of the British Airline Pilots Association said: “Hopefully this announcement signals the beginning of the end to the uncertainty that has been hanging over Thomas Cook.
“I strongly support the company’s moves to find new investment in order to ensure a strong and successful future for the tour operator and the Thomas Cook airline.
“I hope this deal will boost consumer, creditor, regulatory, and staff confidence in the company’s future and I’ve written to the secretary of state asking him to do all he can to help.
“On behalf of the 600 pilots employed by Thomas Cook we hope this deal comes to pass.
“Thomas Cook is a much-loved company with a great British history extending back over 170 years, but it is one which is in need of investment.”
Meanwhile, in a trading update, Thomas Cook revealed that it summer 2019 programme is 75% sold, slightly ahead of the same period last year.
Tour operator bookings are down 9%, “largely consistent with reductions in risk capacity to help support pricing,” which is up 2%.
“While bookings in recent weeks have seen a marked improvement, reflecting the annualisation of the summer 2018 heatwave, margins remain weak due to continued intense competition with high levels of promotional activity across all businesses,” the company disclosed.
Group airline bookings are down 3% overall, with pricing up 2%. Excluding capacity reductions to the in-house tour operator, group airline bookings are up 11% “reflecting higher sales to third-party tour operators, particularly in Germany, and seat only in all markets”.
Cook added: “Looking forward, it is clear that the trends experienced in the first half of the year have continued into the second half, reflecting an uncertain consumer environment particularly in the UK, leading to intense competition.
“As a result, the group expects underlying EBIT [earnings] in the second half to be behind the same period last year.
“The group is helping to mitigate these challenges with a rigorous focus on cost, while remaining fully focused on delivering a stronger holiday offering to customers through high quality, higher-margin hotels, underpinned by a digital focus and market-leading innovation.”
A third-quarter trading update previously set for July 18 has been cancelled.
More: Chinese group would retain Thomas Cook name [June 19]
Comment: What now for Thomas Cook? [July 5]
Comment: Can Thomas Cook survive? [May 19]