Published: Tue, July 16, 2019
Markets | By Otis Pena

Fosun in talks to take over Thomas Cook's tour business

Fosun in talks to take over Thomas Cook's tour business

The recapitalisation would see Fosun acquiring a "significant controlling stake" in Thomas Cook's tour operator business and a significant minority interest in its airline.

The company already owns an 18 per cent stake in Thomas Cook.

Thomas Cook (TCG.L) is in talks on a 750 million pound bailout that will give its largest investor Fosun Tourism (1992.HK) control of the indebted British group's package-tour business, in a blow to other shareholders.

Followed by the reveal of the news, shares of Thomas Cook AG were nosedived about 60 percent to 5.38 pound per share, listed in London Stock Exchange, evaporating billions of market capitalization in a single session, as the debt-laden travel agency had to find a rescue-measure to curb its stockpile of debts.

While Thomas Cook's travails have been well publicised, it still remains a shock to see a legacy operator with such an iconic brand pushing for an unprecedented debt-for-equity deal like the one now being negotiated.

'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, ' Fankhauser added.

"We are committed investors, with a proven track record of turning around iconic brands including ClubMed and Wolverhampton Wanderers FC".

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This announcement results from the strategic review of the group airline announced in February, and subsequent approaches for the tour operator.

The 178-year-old company had seen its market value drop from around US$4 billion when it made its debut on the London market in June 2007, as weak demand led to increased promotional activity and earlier discounting than usual. Thomas Cook warned earlier this year that the European travel market has become "progressively more challenging", which has led to a dent in its finances and has made it hard to sell its tour business.

Bain Capital, an American private equity firm, will acquire a 60% stake in Kantar under the proposed transaction terms, with proceeds for WPP expected to be 3.1 billion United States dollars (£2.5 billion). This is why it has now entered talks with banks and Fosun.

"Shareholders face significant dilution - basically it's wipe-out time", Markets.com chief market analyst Neil Wilson said.

The travel group now has debts of £1.25bn compared to a market value last night of about £204mln.

Fankhauser said the proposed deal with Fosun and lenders would put the firm on a "totally different financial footing" with "massively reduced debt levels".

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