Thomas Cook enlists China's Fosun to salvage oldest travel firm

Thomas Cook £750m rescue plan leaves shareholders out in the cold

Struggling travel company Thomas Cook Group said that it was in advanced discussions with largest shareholder Fosun and its core lending banks about a potential recapitalisation and break-up of the group.

Shares dropped more than 44% in early trading following news of the proposals, which would drastically dilute existing shareholders.

Thomas Cook said its bank lenders were "supportive of the recapitalisation", but said it had to reach agreement with other stakeholders, such as the bondholders.

Fosun Group is already a minority investor in Thomas Cook - with a stake of about 18 percent - and owns French luxury holiday resort group Club Med SAS, which it bought for more than US$1 billion in 2015. Thomas Cook is now looking for large amount of its external bank and bond debt will be changed into equity, and its existing shareholders' stakes will be diluted after the recapitalization.

Thomas Cook chief executive 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 chose 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".

Talking about the deal, Thomas Cook chief executive Peter Fankhauser said: '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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It also means that if Thomas Cook started paying dividends again in future, as unlikely as it may seem at this point, existing shareholders would get a lower proportionate share of any such dividend.

Mr Fankhauser said the sale process for the airline business was paused while Thomas Cook focused on the refinancing.

Thomas Cook's recapitalisation proposal, which may comprise a capital injection and new financing facilities, comes a month after it said it was in talks with Fosun following the Chinese firm's preliminary approach. "It's too early to speculate on what will happen on the airline review", he said.

In March, the firm announced plans to close 21 stores, costing more than 300 jobs, and in May, it revealed a £1.5 billion half-year loss.

Cook underlined its hard situation with a downbeat trading statement that said tour bookings for this summer are down by 9% with fierce price competition driving down prices.

Underlying earnings for the second half are expected to be below last year's performance.

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