Thomas Cook sale on the cards

This model for in-destination business fits Thomas Cook Group's strategy for growth

Thomas Cook is in preliminary talks for a takeover by potential bidders, according to Sky News.

‎The UK tour company has been approached by several parties as its lenders “prepare for crunch talks over the state of its finances”.

Fosun, Kuoni’s owner and Lufthansa believed to be among potential bidders

Having marked its 175th year of being in business in 2016, the company today contends with shifting consumer behaviour, Brexit uncertainty, and other factors hurting traditional industry players, Sky News reported.

Fosun, with which Thomas Cook‎ runs a joint venture in China, is understood by Sky News to be among those who have lodged a preliminary interest in buying its partner’s tour operating business.

Airlines based in the EU are required to be majority-owned by European investors, meaning Fosun’s Club Med holiday business would not be permitted to own Thomas Cook’s carrier.

Other “logical bidders” identified by analysts include EQT and KKR, the two private equity firms which own Kuoni Group and Travelopia respectively, the Sky News article said.

There are also parties believed to be weighing formal approaches for the entire ‎company, which boasts an annual turnover of more than £9 billion (US$11.7 billion).

Analysts estimate Thomas Cook’s airline – which has a fleet of more than 100 aircraft – is valued at up to £3.2 billion.

When the Sky News article was published on Saturday, Thomas Cook and its lenders were reportedly preparing for negotiations about the future of its capital structure in the event that the airline is sold.

Thomas Cook has come through the part of the year‎ when its cash reserves are at their lowest, and funds are being accumulated ahead of the crucial summer season.

Last month, the company said it would close 21 high street shops and pare back its retail workforce.

Earlier this month, the company was forced to issue a stock exchange announcement disclosing that it had inadvertently been breaching its borrowing limits, and that it required shareholder approval to increase them.

Industry observers say Brexit uncertainty is prompting consumers to delay booking overseas holidays.

In recent months, rival TUI has been forced to issue two profit warnings, with the grounding of Boeing’s 737 MAX fleet a factor, while EasyJet has warned of slow summer sales in the last few weeks.

Germany’s Lufthansa is reported to be among those eyeing Condor, the part of the business which is based in the country, with Sky News also reporting that talks about the airline sale are complicated by the need to strike a deal for Thomas Cook’s holiday customers to travel on its planes.

The article cited analyst forecast that Thomas Cook will now need to raise hundreds of millions of pounds in fresh equity. The company in 2013 underwent a £1.6 billion capital restructuring under then chief executive Harriet Green.

Current chief executive Peter Fankhauser described last year’s performance as “disappointing” but has a turnaround plan involving greater investment in its own hotel portfolio.

Bank of America Merrill Lynch, Credit Suisse‎ and Morgan Stanley are advising Thomas Cook on the review of its airline business, and fielding interest in a full takeover of the business, Sky News understands. The company is expected to provide an update when it reports half-year results next month.

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