Ian Taylor on the deal’s ‘known knowns’ and the ‘unknown unknowns’
Thomas Cook issued an update on its planned takeover by Fosun Tourism Group and its banks and bondholders on Wednesday.
It announced that “substantial agreement regarding key commercial terms” had been reached on what is essentially a rescue, otherwise known as a “Proposed Recapitalisation Plan”.
The update contained no surprises but provided answers to some of the questions about the takeover.
These fall somewhat into what former US defence secretary Donald Rumsfeld referred to ahead of the invasion of Iraq in 2003 as “known knowns”, “known unknowns” and “unknown unknowns”, that is stuff “we don’t know we don’t know”.
The deal will see Thomas Cook recapitalised to the tune of £900 million, as indicated earlier this month. So the company will benefit from the additional £150 million it requested on top of the original £750 million proposed.
Chinese group Fosun will put in £450 million of this as previously announced and Thomas Cook’s “core lending banks and noteholders” [bondholders] will put in another £450 million as well as converting the debts they hold to equity.
Fosun will acquire “at least” 75% of the group tour operator and 25% of the airline.
The debt held by the banks will be converted into “approximately 75%” of the equity in the airline and “up to 25% of new equity” in the tour operator.
Podcast: Thomas Cook rescue deal
That clear? It’s a 75/25 split between Fosun and the banks on everything but the airline, and 75/25 in the banks’ favour on the carrier which Fosun can’t own and control anyway under EU rules.
Thomas Cook continues to hold out a small carrot to existing shareholders who “may be given the opportunity to participate in the recapitalisation”.
But for the avoidance of doubt: “The recapitalisation is expected to result in existing shareholders’ interests . . . being significantly diluted.”
The deal should complete by early October.
It remains subject to “a legally-binding agreement being reached” as well as to “credit approvals, investment approvals, agreement on Group performance conditions, due diligence, agreement as to risk allocation . . . agreement on separation of the group into Airline and Tour Operator and timely execution of the separation, agreement with stakeholders (including fuel and foreign exchange hedging counterparties, pension fund trustees, noteholders, other financial creditors and Fosun shareholders), licence renewals and receipt of regulatory and anti-trust clearances and approvals”.
If all that proceeds smoothly then phew! But it should.
In the meantime, Thomas Cook “has agreed a cost cover arrangement with Fosun with respect to the costs and expenses incurred with professional advisors in evaluating and negotiating the proposed recapitalisation”. This is put at up to £5.43 million.
“Arrangements have also been made to meet the reasonable adviser costs of its core lending banks, bondholders, and other appropriate stakeholders.”
These are the known knowns.
“The current intention is to maintain the Company’s listing. However, implementation of the proposed recapitalisation may result in cancellation of the listing.”
So Thomas Cook may be pulled from the stock market.
There is also the small matter of Neset Kockar, head of Turkish holiday group Anex Tour, and his near 8% stake in Thomas Cook acquired in July.
It’s unclear from the update whether Kockar will have any involvement in the takeover or simply see his holding “diluted” with other shareholders
Thomas Cook did not comment on whether there has been any interaction with Kockar.
This, the listing, the fate of shareholders – whether there is to by anything but a wipe out – and the final split on the tour operator ownership – remain known unknowns.
It is not unheard of for companies to retain a small public listing despite being overwhelmingly privately owned. This is the situation at football giant Manchester United, though God forbid it should be held up as an example.
But leaving the London Stock Exchange would be no bad thing for Thomas Cook.
Cuttingly, business newspaper the Financial Times noted this week: “Persistent returns are not the hallmarks of holiday companies.
“They make uncomfortable stock market investments. Fosun is welcome to Thomas Cook.”
Anything untoward which might yet lie in Thomas Cook’s accounts would be an unknown unknown. Let’s hope that, like Iraq’s weapons of mass destruction, there are none.
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