Shares in Thomas Cook Plummet as the Travel Agency Requests More Cash from Investors
Thomas Cook shares have plummeted after the international travel agency said it needed an additional 150 million pounds from investors, which also follows a request for more than 700 million pounds, in order to prepare for the Christmas period.
According to Thomas Cook, talks between its banks and its largest shareholder, the Chinese investment company Fosun, were already underway. As of Tuesday, 13th of August 2019, Thomas Cook share price hit 6.91p, sparking concerns as to whether the firm will survive or not.
Thomas Cook described the proposal as follows:
‘On 12 July 2019, Thomas Cook (“the Company” or “the Group”) announced that it was in advanced discussions with its largest shareholder, Fosun Tourism Group and its affiliates (“Fosun”), and its core lending banks on the key commercial principles on which they would make a substantial new capital investment as part of a proposed recapitalisation of the Group.
‘Since this announcement, Thomas Cook has made significant progress towards finalising the key transaction terms of the recapitalisation with Fosun, the Group’s core lending banks and subsequently with noteholders representing approximately 50 per cent of the Company’s 2022 and 2023 senior notes.’
‘The discussions with noteholders include the injection of additional capital on top of the previously announced £750 million. This additional capital, of approximately £150 million, will provide further liquidity headroom through the coming 2019/20 winter cash low period and ensure the business can continue to invest in its strategy.’
‘As stated in the Company’s announcement on 12 July 2019, the proposed recapitalisation will require a reorganisation of the ownership of the Tour Operator and Airline businesses which would result in a significant amount of the Group’s external bank debt (£650 million) and bond debt (€1.15bn) being converted into equity, resulting in a substantial deleveraging of the Group. Existing shareholders are therefore expected to be significantly diluted as part of the recapitalisation, although they may be given the opportunity to participate in the recapitalisation on terms to be agreed between among others, the Company, Fosun, and the converting financial creditors. The Group expects to implement the recapitalisation in early October 2019.’
‘The recapitalisation proposal remains subject to certain conditions including performance conditions, due diligence, further discussions and reaching agreement with a range of company stakeholders (including the pension trustees, noteholders, other financial creditors and Fosun’s shareholder approval), and receipt of any regulatory and anti-trust clearances or approvals.’
To read the full update from the Thomas Cook website click here.
With huge debts, fierce competition from rival companies, and a drastic switch towards online bookings the UK based travel business has faced difficult times in recent years.
In May of this year, the extent of the financial damage that the crisis Thomas Cook is going through was displayed for all to see when the travel operator announced a one and a half billion pound loss, and its third consecutive warning concerning the company’s profits. Thomas Cook holds the uncertainty that surrounds Brexit responsible for the crisis it is facing due to the crippled consumer sentiment as British consumers put off holiday plans for the summer due to the limbo state of Brexit.
“The first six months of this year have been characterised by an uncertain consumer environment across all our markets. The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.”
“Our loss from operations for the period was £1.4 billion, which reflects a non-cash impairment of historic goodwill, largely related to the merger with MyTravel in 2007 which we have re-valued in light of the weak trading environment.”
“Our current trading position reflects a slower pace of bookings, against a strong first half in 2018, and our decision to reduce capacity in order to mitigate risk in the tour operator and allow our airline to consolidate the strong growth it achieved last year.”
“Despite this more challenging environment, we have made good progress on our strategy of differentiation. Following the announcement of the strategic review of our Group Airline in February, we have received multiple bids, including for the whole, or parts, of the airline business. As we assess these bids, we will consider all options to enhance value to shareholders and intensify our strategic focus.”
“As we look ahead to the remainder of the year, it’s clear that, notwithstanding our early decision to mitigate our exposure in the ‘lates’ market by reducing capacity, the continued competitive pressure resulting from consumer uncertainty is putting further pressure on margins. This, combined with higher fuel and hotel costs, is creating further headwinds to our progress over the remainder of the year.”
With the arrival of the August month came the collapse of other competitors, such as Super Break and LateRooms, and more than 150 jobs lost, travel operators have announced profit warnings due to the steep drop of the British pound which has driven holiday costs upwards through the roof.
The latest plea for emergency funding came shortly after Thomas Cook announced that discussions were being held regarding a rescue agreement with the Chinese investment company Fosun. During the start of the year Thomas Cook put its airline business for sale in a desperate effort to gather a subsidy. 3 months later the company revealed it had several bidders but failed to reach an agreement with any so it turned its attention towards Fosun who propped up the travel operator and claimed a stake in the British company.
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 long-standing 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.”
Taken from the Thomas Cook Group website.