Comment: Thomas Cook – forget the share price, the rescue is all

Thomas Cook confirmed this week it is in talks with bondholders to secure an additional £150 million in capital.

This would take the value of the proposed rescue deal by Chinese group Fosun and Thomas Cook’s creditor banks and bondholders to £2.5 billion.

Thomas Cook also restated that existing shareholders would see their stakes “significantly diluted” by the takeover.

This followed a small spike in the value of Thomas Cook shares after the purchase of stakes by Neset Kockar, owner of Turkey’s Anex Tourism, and Russian investor Lilia Rodionova.

Thomas Cook share price via Google

The latest announcement saw Thomas Cook’s share price fall back to less than 7 pence – which may well have been the intention of repeating the fact that existing shareholders stand to be ‘wiped out’.

The last thing Thomas Cook needs is speculation that there may be an alternative to the Fosun takeover.

To recap on the deal – Fosun, which owns 18% of Thomas Cook at present, would take a majority stake in Thomas Cook’s tour operator, retail and associated operations and a minority stake in the group’s airline.

Thomas Cook’s creditor banks and bondholders would swap Thomas Cook’s debt for control of the airline and a minority stake in the rest of the group, which would remain under a Thomas Cook holding company.

Podcast: Super Break, Tui and Thomas Cook

Ownership of the group would be split, but the airline and operations not broken apart – a key plus for Thomas Cook compared with the earlier proposal to sell its carrier.

The plan unveiled in June called for Fosun to put in about £450 million to take over, with the banks providing another £300 million in line with the credit facility announced in May.

Fosun and the banks/bondholders between them would take on Thomas Cook’s £1.6 million debt, making the takeover worth £2.35 billion in total.

The extra £150 million now under discussion takes that figure to £2.5 billion.

I doubt negotiations over the extra capital are a sign the rescue is in jeopardy, but only those privy to the details will know.

Thomas Cook also confirmed that shareholders “may be given the opportunity to participate in the recapitalisation on terms to be agreed between the company, Fosun and the converting financial creditors” – the creditors converting the debts Thomas Cook owes to equity in the revamped company.

Saving the business

Thomas Cook’s executive officers have been trying to save the business throughout this year – with the size of the steps required continually escalating.

These began with the announcement of a review (sale) of the group airline in February, led to the announcement of huge losses and a new credit facility in May and to the proposed deal with Fosun and the debt-for-equity swap in June.

It seems likely the rescue deal will be completed, but it is not a given. Thomas Cook requires £2.5 billion to survive and sign off on it before the end of September.

Anything else you hear between now and that deadline is froth.

Neset Kockar, who built an 8% stake in Thomas Cook at the end of July, confirmed this week his intention is not to profit from the shares but to be involved in Thomas Cook’s future.

In a statement, he said: “We believe Thomas Cook has more value and potential than discussed, particularly with the skillset and complimentary capabilities Anex Tour shall put forward.

“We are keen to explore potential strategic initiatives related to Thomas Cook and engage with relevant stakeholders.”

Kockar and his Anex Tourism Group have hotels and resorts in Turkey and up to one million clients in Russia who holiday in Turkey. Cook has hotels in Turkey and significant interests in Russia through inbound operator Intourist and outbound operator Biblio Globus.

There are potential synergies there, but only if Fosun agrees. Thomas Cook’s banks and bondholders are likely to be happy with any additional investment.

Changing capital requirements

News that Thomas Cook requires still more capital does not boost confidence and will have spooked analysts.

I have no idea why this extra capital cushion should be required now. But I suspect the banks would like Fosun to put in more money and, that being the case, Fosun may have suggested the bondholders should too.

It might be wise, because it appears there is a recession coming. All the signs in the equity and financial markets and in bigger economies than the UK – the US, China, the euro zone – point to it.

Meantime, there appears a mood among Thomas Cook’s smaller shareholders that some would rather see the company fail than carry on in the way proposed.

That is understandable in the circumstances, but it would be bad news for Thomas Cook’s 21,000 employees and those employed in the resorts to which the company sends clients.

The attitude of analysts may prove more serious if it infects those poised to refinance the group.

The business newspaper the Financial Times summarised the issue in a few scathing lines this week:

It noted Thomas Cook reported last November that provision of a new bond had “improved the group’s liquidity”.

In February, Thomas Cook reported that “maintaining a minimum buffer within our targeted range of £150 million to £200 million [would give] . . . a healthy level of liquidity headroom”.

However, in May the group needed a “£300 million bank facility to provide additional liquidity”.

But that also was not enough. In July: “An injection of £750 million . . . would provide sufficient liquidity to trade over the winter 2019-20 season.”

Now Thomas Cook seeks another £150 million.

This led the Financial Times to ask: “How can Thomas Cook bosses have got the exposure wrong for nine months?”

The newspaper suggested: “Its new majority owners are sure to take a view.” Indeed, they are.

The sooner Thomas Cook is taken private the better. What happens after that is a question for another time.

More: Fosun – what you need to know

Why Thomas Cook will not be broken up after planned Fosun takeover

Chinese group would retain Thomas Cook name


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