China's Fosun considers $942M Thomas Cook investment

Following a rough first half of its fiscal year, beleaguered British tourism and hospitality operator Thomas Cook Group is in "advanced talks" with Chinese conglomerate Fosun for a "much-needed" cash infusion of close to $1 billion.

According to Bloomberg, the approximately $942 million deal will give Fosun, which already owns 18 percent of Thomas Cook, control of the U.K. company’s tour operations and a minority stake in its airline while issuing new shares. The funds would provide sufficient liquidity to keep the company in business through the winter 2019-2020 season as well as the financial flexibility to invest in the business for the future. At completion, the new money would comprise a capital injection and new financing facilities.

Thomas Cook CEO Peter Fankhauser
Thomas Cook CEO Peter Fankhauser
Photo credit: Thomas Cook Group

If the proposal comes to pass, a significant amount of the group’s external bank and bond debt will be converted into equity, to be agreed following discussions with financial creditors. The Group’s core lending banks are reportedly supportive of a recapitalization and are engaged in constructive discussions with the Group to agree to terms. The proposed recapitalization reportedly will not impact trade creditors.

"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 recapitalize the business, supported by a substantial injection of new money from our long-standing shareholder, Fosun, and our core lending banks," said Thomas Cook CEO Peter Fankhauser. "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."

Fosun and Thomas Cook already run a joint hotel venture in China, where they're developing Thomas Cook-branded properties in the southern part of the country and near Shanghai. In addition to 18 percent of Thomas Cook, Fosun also owns all-inclusive operator Club Med.

Johanna Bonhill-Smith, a travel and tourism analyst at data and analytics company GlobalData, said Fankhauser "had no choice but to consider any deal" that could keep the company afloat. "Ultimately, Thomas Cook is in the position it is because its business model has not majorly evolved since it first began as a typical all-inclusive package holiday tour operator," Bonhill-Smith said. "It has failed to adopt strategies to counter the threat of disruptors such as Airbnb and change is now a necessity for the company to succeed.

“The deal with Fosun will provide at least a stay of execution, providing funds to carry on trading as normal over the winter period, but in the longer term there will be drastic changes. If this collaboration is to be truly effective, Fankhauser, alongside the rest of the Thomas Cook Group, needs to be fully prepared and ready to accept radical change that is ahead," said Bonhill-Smith. 

Thomas Cook's Hotels

Responding to inquiries from Hotel Management, Nigel Fairbrass, a consultant with communications consultancy Eterna Partners, who works with Thomas Cook, said the deal would focus on the company's tour operations and the airline. "There shouldn't be any impact on the hotels at all," he said.

Defying the company's fiscal challenges, Thomas Cook's hotel portfolio has been growing in recent years. In May, the company's hotel fund, Thomas Cook Hotel Investments (TCHI), acquired three additional properties in Spain and Greece. Last month, Thomas Cook announced plans to invest €40 million in its managed proprietary hotels in Spain through summer 2020. The company also is slated to open two new hotels in the Egyptian resort town of El Gouna.

Over the course of a year since its March 2018 launch, Thomas Cook's hotel fund has nearly doubled its portfolio to nine properties.
 
The BBC noted the rescue deal could indicate a potential retreat from the stock market for Thomas Cook, in a move that would see the world's oldest package-holiday firm become a private company.