After news of Thomas Cook being approached for takeover by its largest investor Fosun Tourism, the UK travel company reportedly said last week that the proposed £750 million (US$939 million) bailout, despite diluting shareholder value, is its best option.
The proposed deal is expected to give Fosun control of Thomas Cook’s package tour business, and a minority interest in the group’s airline business, in addition to seeing Fosun extending capital injection and new financing facilities to the ailing UK company.
“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,” chief executive Peter Fankhauser told journalists.
Following the announcement of the deal, Thomas Cook shares plunged 44 per cent to a record low late last week.
The impact of reorganisation on Thomas Cook’s 22,000 employees remains uncertain, with Fankhauser telling the media that the immediate priority is to complete the refinancing of the business.
According to a report published last week, Thomas Cook has a market value of around £200 million and net debts of £1.25 billion.
The British holiday company’s tour business had 11 million customers in 2018 and produced £7.4 billion in revenue. Its airline business – which includes German holiday carrier Condor – made £3.5 billion in revenue.
The company said last Friday that summer bookings in its tour operations business were down nine per cent, while those at its airline business are down three per cent, according to Reuters.
Thomas Cook expects that cash from the deal would allow it to trade over the winter season and give it flexibility to invest.
The recapitalisation proposal comes a month after news broke of a preliminary approach by the Chinese firm.
Fosun has been purchasing tourism assets including France’s Club Med, as the industry is viewed as key to China’s shift towards a more consumption-driven model of economic growth from an investment and export-led one.
Chinese companies have in recent years been scrutinised by Beijing for debt-fuelled, big-ticket foreign deals.