Fosun International, which is in talks to acquire a majority share in Thomas Cook, is a Chinese conglomerate founded in 1992 and listed on the Hong Kong stock exchange.
It reported annual profits of Rmb13.4 billion ($2 billion) for 2018 and turnover of Rmb109 billion ($16 billion).
The group is led by Guo Guangchang, one of four co-founders who styles himself the ‘Warren Buffet of China’.
Podcast: Thomas Cook – future secured?
Buffet is a US billionaire investor often referred to as “the sage of Omaha” because of his investment record and canny stock market predictions.
Guo and three fellow graduates of Shanghai’s Fudan University established the company in Shanghai just three years after the Tiananmen Square massacre of 1989, the 30th anniversary of which was celebrated in June, and five years before Britain handed control of Hong Kong back to China in July 1997.
Fosun developed from an initial focus on investments in Chinese manufacturing and mining to make worldwide investments in property, pharmaceuticals, healthcare, insurance and the retail and entertainment sectors.
The company listed in Hong Kong in 2007 as parent of property developer Shanghai Forte and gold mining company Zhaojin.
Subsequently, it sought to take advantage of the eurozone crisis from 2010 to acquire EU businesses at knock-down prices with sovereign wealth fund partners in Dubai, Abu Dhabi and Doha.
The group’s then chief executive Liang Xinjun said at the time: “A decade of growth led by industries and infrastructure in China is over. There is a window of two to three years when assets in Europe and the US will be undervalued.”
Fosun business acquisitions
Fosun operates somewhat like a private equity fund, tapping debt and capital markets and using capital from its insurance assets to finance business acquisitions.
Business newspaper the Financial Times suggested Guo Guangchang “sees insurance businesses as great cash cows that can fund investments”.
Companies it owns include resort group Club Med, UK football club Wolverhampton Wanders, entertainment group Cirque du Soleil, Portuguese insurance groups Fidelidade and Caixa Seguros, French food manufacturer St Hubert SAS, Brazilian investment fund Rio Bravo and Indian pharmaceutical company Gland Pharma.
Fosun is part of a consortium developing the coastal site of Athens’ former international airport as a resort in an $8-billion project.
Its property arm has offices in Tokyo, London, Lisbon, New York, Zurich, Sydney, Sao Paulo, Moscow, Singapore, Milan, Seoul, Mumbai, Frankfurt and Warsaw.
Yet in Guo’s words: “Fosun’s strategy is to focus on family needs and build an ecosystem around health, wealth and happiness.”
Bidding war for Club Med
Fosun’s acquisition of French resort group Club Med in 2015 followed a process somewhat similar to that underway with Thomas Cook in that the group made an initial investment years before its takeover.
A Club Med deal was first touted in 2010 when Fosun took a 7% stake in the French company, raising this to 9.7% later the same year.
However, Fosun faced a rival bidder for Club Med which drove up the final price. That will most certainly not happen with Cook in its current circumstances.
The Chinese group made an initial takeover bid in May 2013 and appeared poised to buy Club Med for €557 million in mid-2014. But then Italian investor Andrea Bonomi made a rival bid, triggering the longest takeover battle in French business history. In the end, Club Med cost Fosun €939 million.
Club Med, a pioneer of all-inclusive resorts and ‘wellness’ holidays, attracted 1.2 million customers a year at the time of Fosun’s initial involvement, just 30,000 of them from China.
Fosun sought to combine Club Med’s ‘upmarket’ European brand with its expertise in Chinese property development to tap China’s growing middle-class market.
Its relationship with Thomas Cook has followed a similar trajectory.
Fosun took an initial 5% stake in March 2015 with a pledge to expand its holding to 10% as the companies developed a partnership.
This involved establishment of a new investment company to own Thomas Cook-operated hotels, closer ties with Club Med and plans for Thomas Cook to expand in China.
The original tie-up was announced when Thomas Cook shares were priced at £1.45. They had been nowhere near that before or nowhere near since aside from a 20% jump in the wake of that initial investment.
Thomas Cook’s share price rose from a new low following the announcement of Fosun’s interest in a takeover in June but was at 7p this week.
Fosun owns its current 18.6% stake in Thomas Cook through Fosun Tourism Group and Portuguese subsidiary Fedelidade Property International (FPI) UK.
A takeover in partnership with Thomas Cook’s creditor banks and bondholders won’t faze it. Fosun tends to partner in its investments.
On the Club Med deal, it joined French private equity group Ardian, Chinese online travel agency U-Tour and Brazilian entrepreneur Nelson Tanure.
‘No one is off limits’
Fosun chief Guo Guangchang is a multi-billionaire. He ranks among China’s richest. Yet that did not prevent him disappearing for several days in December 2015, detained by Chinese authorities.
He reappeared to say he had been “assisting in investigations carried out by the mainland judicial authorities” but declined to say more about what happened.
Fosun insisted the investigation did not relate to the company and Guo faced no charges. But a Shanghai business figure told the Financial Times it sent a signal: “No one is off limits.”
It was the nearest Fosun has come to being caught up in two great crackdowns by China’s rulers.
The first involved a purge of corruption among business leaders and officials launched by President Xi Jinping at the end of 2012.
That was followed from 2016 by a crackdown on China’s huge shadow (unofficial) banking sector and a curb on overseas investing by Chinese corporations.
Fosun was one of four overseas investment groups identified as under investigation by Beijing authorities seeking to rein in excessive borrowing, leveraged loans and capital flight.
By 2016, the group had spent $38 billion on more than 130 mergers and acquisitions since 2010.
Other corporations in the regime’s sights – airline group HNA and property development group Dalian Wanda – were forced to sell overseas assets, and HNA remains in trouble despite a succession of divestments.
Insurance group Anbang was seized by the government, the company broken up and its founder Wu Xiaohui jailed on charges of fraud and embezzlement despite being married to the granddaughter of China’s former leader Deng Xiaoping.
The Financial Times quoted Michael Hirson, director of the Eurasia Group consultancy, who said: “Anbang has important lessons [for Fosun]. All should be on notice of how serious Xi is about loyalty to him and his agenda.”
Guo was briefly reported to have been detained again in 2017 but reappeared to insist he had been on a business trip to mainland China and praised the government crackdown on foreign investment.
On Fosun’s social media account, he wrote: “The recent scrutiny on overseas investments and financial irregularities is necessary, timely and can eradicate a lot of irrational investment.
“If we do not take measures, foreigners will see us as ‘silly people with a lot of money’.”
Fosun stepped back from making investments for a time, but reassured investors it remained in good standing with China’s authorities.
It resumed investment activity last year, taking stakes in China’s Tsingtao brewery, a French confectioner and European fashion brands.
Guo insisted in February 2018: “Our overseas investments are approved by the Chinese government and local governments. The Chinese government support companies who respect the law.
“Fosun can continue its development overseas because of its very strong financials.”
He added: “We are looking carefully at [deals] in the healthcare, education, fashion and tourism sectors.”
How Fosun goes about things
The Financial Times noted in February 2018: “The [Beijing] government’s treatment of groups differs depending on their sources of financing and whether they have cooperated in the government’s campaign to slow capital outflows.”
One consultant noted: “Conglomerates have been borrowing from Chinese banks and making overseas deals and doing deals which do not much benefit the regime. If things go wrong, the risk is with state-owned banks.”
A note of caution is therefore due on the proposed deal with Thomas Cook.
The Financial Times quoted Fraser Howie, an expert on financial regulation in China, saying: “When you’re dealing with Chinese companies you have to be aware that the risk of it failing is high because of the potential political pressures.
“The issue is how the deals are funded and whether they fit into state aims and can be said to be benefiting the country.”
We can assume that as a senior figure at the Hong Kong University of Science and Technology said of an earlier acquisition: “Fosun will not have made a deal without informal approval.”
At the same time, the China Market Research Group noted of Fosun’s earlier investments: “Fosun is really intelligent about how to go about things.
“They retained existing foreign management when they bought into [designer jewellery brand] Folli Follie and Club Med. Chinese consumers still think of these as foreign, premium brands.”
That view was confirmed this week by China marketing expert Cathy Chon, head of Finn Partners Hong Kong.
She insisted Fosun would want to preserve Cook’s brand, arguing: “When a Chinese group buys a western company, they want to retain its cachet. They also tend to be discreet.”
Thomas Cook could certainly do with Fosun’s capital, its discretion and its desire to preserve Cook’s brand.