Thomas Cook in £750m rescue deal talks with biggest shareholder – The Guardian

Thomas Cook

Chinese investor Fosun would get majority stake in travel firm's tour operator business

The deal with Fosun would ensure Thomas Cook trades through the next winter travel season.Photograph: Terry Harris Just Greece Photo L/Alamy

The struggling travel company Thomas Cook is in talks over a GBP750m rescue deal that would hand control of its 178-year-old package holiday business to a Chinese investor. The company confirmed on Friday it is in "advanced discussions" to secure new funding from its banks and Shanghai-based conglomerate Fosun, which owns Wolverhampton Wanderers FC and holiday resort chain Club Med. Fierce competition from online rivals, together with one-off factors such as last summer's heatwave and Brexit uncertainty, have hindered the debt-laden tour operator's recovery from its near collapse in 2011.

The GBP750m cash injection is designed to see the company through the winter, when holiday bookings are at their lowest, affording it time to cut costs and raise money by selling its airline division. The deal will also whittle down its crippling GBP1.6bn debt mountain, some of which lenders have offered to forfeit in exchange for shares in the business. Chief executive Peter Fankhauser said customers who have booked with Thomas Cook have no reason to fear any impact on flights or holiday bookings.

However, he warned it would be up to Fosun to decide on whether any of the company's 21,000 staff would lose their jobs, or whether any of its high-street shops, 567 of which are in the UK, would close. "Today's announcement is really about a plan that ensures the business to continue to trade and operate as normal, and the deal preserves our brand," he said. "So that is principally really good news for our employees." He said that given the sensitive nature of talks with Fosun, Thomas Cook had not yet spoken to trade unions, but would now begin that process.

The cash injection would give 18% shareholder Fosun, a majority share in the company's package holiday business whose roots go back to 1841, when cabinet-maker Thomas Cook began organising travel for fellow members of the temperance movement to attend meetings. Fosun will also get a minority holding in Thomas Cook Airlines, which is likely to be sold. The deal will significantly reduce the value of shares held by other investors, which resulted in the firm's shares falling 48% on Friday to a new record low of 6.85p.

Quick guide

The history of Thomas Cook

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Thomas Cook owes its name to a humble and deeply religious 32-year-old cabinet-maker who, one June morning in 1841, hiked the 15 miles from his home in Market Harborough to Leicester, to attend a temperance meeting.

The former Baptist preacher believed that the ills of Victorian society stemmed largely from alcohol and, presumably fatigued from his walk, realised he could deploy the power of Britain's flourishing rail network to help spread the word. Addressing the temperance meeting, he suggested that a train be hired to carry the movement's supporters to the next meeting in Loughborough. Thus, on 5 July 1841, some 500 passengers travelled by a special train for the 24-mile round trip, paying a shilling apiece.

Over the next few years, Cook laid on ever more trains, introducing thousands of Britons to train travel for the first time. The first such outing to be run for commercial purposes was a trip to Liverpool in 1845. Over the next decade or so, the business expanded to offer overseas trips, to France, Switzerland, Italy and beyond, to the US, Egypt and India.

His more business-minded son John expanded the tour operator and its reach was such that the government enlisted its expertise in an effort, ultimately in vain, to relieve General Gordon at the siege of Khartoum in 1885. John's three sons inherited the business, which incorporated as Thos Cook & Son Ltd in 1924 and benefited from the increasing ease of international travel. Its first flirtation with collapse came during the second world war, when the government requisitioned some of its assets and it was sold to Britain's railway companies, effectively a nationalisation.

But it boomed in the postwar years as growing prosperity fuelled the appetite for holidays and it returned to private ownership in 1972. Since then, it has changed hands and changed shape via a series of mergers and takeovers. It nearly collapsed in 2011 but averted its demise with a bailout deal funded by banks.

Now, after 178 years of operation, it is relying on its largest shareholder - the Chinese conglomerate Fosun - to survive.

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The bailout replaces a plan drawn up by Thomas Cook's lenders in May, under which they would have ploughed GBP300m into the business. At the time, one City analyst responded to the plan by branding the shares practically worthless, due to the eventual likelihood of a deal much like the one announced on Friday. Thomas Cook was in need of new money after running up a GBP1.5bn loss in the first half of the financial year, mostly due to a GBP1.1bn cut in the estimated value of its package holiday division, which has been wrestling with dire trading conditions.

An influx of online competitors has intensified competition and led to oversupply across Europe, forcing tour operators to cut prices. The effect has been exacerbated by last summer's heatwave, which convinced customers across Europe to stay at home. The UK market, Thomas Cook's second biggest after Germany, has been further hit by a fall in the value of sterling since the EU referendum and flagging consumer confidence amid Brexit uncertainty.

At the same time, high jet fuel prices and inflation in hotel prices have pushed up Thomas Cook's costs. The effect of lower income and higher costs has rendered interest payments on its GBP1.6bn debt unsustainable. The 178-year-old company said on Friday that the European travel market had only become more challenging in recent months.

Taking a majority stake in Thomas Cook would expand Fosun's existing presence in Europe. The conglomerate bought the holiday resort chain Club Med in 2015 for EUR939m (GBP844m), and acquired the Premier League football club Wolverhampton Wanderers for GBP45m in 2016.

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A spokesperson 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."

Fankhauser said: "After evaluating a broad range of options to reduce our debt and to put our finances on to 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."


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