Thomas Cook shares crash as the world’s oldest package holiday firm closes in on sale to Chinese investors that could wipe out all other shareholders
- Shares in cash-strapped travel firm Thomas Cook have plunged more than 40%
- The firm said it is in discussions with Chinese Fosun over a £750m cash injection
- It has been grappling with falling booking numbers amid Brexit uncertainty
Investors fled Thomas Cook in early trading today after the cash-strapped travel firm admitted it is in ‘advanced discussions’ with its largest shareholder Fosun over a deal that would see the Chinese conglomerate effectively seize control.
Thomas Cook – the world’s oldest package holiday group – is in need of a £750million cash injection so that it can trade through next winter.
It is considering handing Fosun a controlling stake in its tour operating business as well as a significant interest in its airline arm in exchange for the much-needed funds.
Tough times: Thomas Cook – the world’s oldest package holiday group – is in need of a £750million cash injection
The news saw shares plummet by more than 40 per cent to just over 8 pence per share amid fears that the move will drastically dilute existing shareholders.
‘Basically it’s wipe out time,’ said Markets.com analyst Neil Wilson.
Shareholders can take part in the recapitalisation by investing alongside Fosun if they choose.
It follows reports that Fosun was eyeing up a deal, paving the way for a complete break-up of the British travel firm.
Thomas Cook boss Peter Fankhauser said: ‘After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing, the board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our longstanding shareholder, Fosun, and our core lending banks.
‘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.’
The Peterborough-based firm gave an update on current trading revealing that package holiday bookings are down 9 per cent, while flight bookings are down 3 per cent.
Thomas Cook’s shares have been in decline since May 2018, falling from £1.36 then to 8p now
It added that the sale process for its airline has been ‘paused’ while the funding takes place. But Wilson argued that the prospect of selling the airline would probably be ‘dead’ if Fosun takes control of part of the business.
‘Given the current environment, it may have been harder to offload the airline than thought, at least at a price that worked for Thomas Cook,’ he said.
Thomas Cook has been grappling with declining bookings amid Brexit uncertainty, the weak pound and last year’s unprecedented warm weather.
The company said in May that the ongoing Brexit paralysis contributed to its £1.5billion half-year loss.
It is slashing costs in the face of higher fuel expenses, with 150 head office jobs already axed. It may also seek further store closures as falling footfall on UK high streets takes it toll.
The Peterborough-based firm revealed package holiday bookings are down 9 per cent
A spokesman for Fosun said: ‘Fosun is a shareholder in Thomas Cook, because it is a British company operating in the global travel industry, in which we have extensive experience.
‘We are committed investors, with a proven track record of turning around iconic brands including ClubMed and Wolverhampton Wanderers FC.’
AJ Bell investment director Russ Mould added: ‘Thomas Cook – a one-time stalwart of the UK corporate world and a name with a history which goes back to the middle of the 19th century – looks like it will end up in the hands of its major Chinese shareholder Fosun.
‘Customers may not see a huge difference, at least in the short term. However, the details of the rescue plan outlined by the travel operator suggest there will be very little left on the table for existing shareholders with debt being written off and converted into shares.
‘Today’s news is the latest example of the need for businesses to be careful with their balance sheets, particularly when operating in an industry where costs and earnings can be unpredictable,’ he continued.
‘Anyone who has booked a holiday with Thomas Cook will want to see the refinancing deal sorted as soon as possible so they aren’t fretting over whether their holiday provider is actually around to fly them to the beach.’