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Chinese Conglomerate Considers $940 Million Rescue of Debt-Strapped Thomas Cook

Jinshan Hong, Richard Weiss and Luca Casiraghi
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Chinese Conglomerate Considers $940 Million Rescue of Debt-Strapped Thomas Cook

(Bloomberg) -- Thomas Cook Group Plc’s bonds rallied but its shares fell after China’s Fosun Group said it may help fund a 750 million-pound ($940 million) rescue of the ailing British travel firm that would heavily dilute its stock.The deal will give Cook’s biggest investor control of the U.K. company’s tour operations and a minority stake in its airline, the sale of which will be put on hold, while swapping debt for equity and issuing new shares, Fosun Tourism Group said in a statement Friday.The talks are advanced, with the money set to provide liquidity through the traditionally slow winter season, according to London-based Thomas Cook. A takeover of a tour operator with roots dating to 1841 would mirror the Asian insurance-to-drugs conglomerate’s acquisition of Club Med, the French resort chain it bought in 2015 and has boosted by bringing in more Chinese tourists.“This plan will put the company on a totally different financial footing with a massive reduction of debt,” Thomas Cook Chief Executive Officer Peter Fankhauser said on a call. “While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution.”He added that while existing stockholders face having their stakes diluted under the plan, they have an opportunity to reinvest alongside Fosun.Cook’s bonds jumped 18% on the news, gaining as much as 6 cents on the euro to 40 cents. Its shares fell as much as 50%, the most since 2011, to a record low. They were trading down 46% as of 12:35 p.m. in London, taking declines this year to 77% and valuing the company at 109 million pounds.Margins at Thomas Cook have been shrinking amid a sluggish European vacation market as more people holiday at home following last summer’s heatwave. Uncertainty over the economic impact of Brexit has also weighed on demand, with tour operator bookings down 9% this summer and airline sales 3%, leading the company to predict lower second-half operating profit.A deal would require agreement from stakeholders and regulators, Cook said, adding that its main lenders are supportive of a recapitalization. A group of bondholders is in “constructive dialogue” with the company, according to their financial adviser Houlihan Lokey Inc. and law firm Milbank.“Fosun is hoping Thomas Cook’s brand name and global reach will expand its business among wealthy Chinese tourists,” said Andrew Collier, managing director at Orient Capital Research.Fosun already owns about 18% of Thomas Cook, and protecting that stake may also have prompted its owner, Guo Guangchang, to agree to the rescue, said Brock Silvers, managing director at Kaiyuan Capital in Hong Kong. Investment in an unprofitable business in a declining sector is otherwise “puzzling.”The refunding plan means the mooted sale Cook’s airline business has been “paused,” according to the company’s statement, though Fankhauser said it may be resumed. A number of carriers had looked at the assets, though none indicated that they would bid.Sanford C. Bernstein Richard Clarke and Harry Martin said in a note that the recapitalization “effectively admits failure in the process to sell the airline,” leaving an intervention from Fosun “the only option to save the business.”Creditors had been seeking to exit loans on concern that Cook’s declining performance would weaken its ability to repay debt that totaled 1.9 billion pounds as of March 31, according to data compiled by Bloomberg.In May, S&P Global ratings and Fitch Ratings pushed the company’s credit score deeper into junk territory, citing high indebtedness.Thomas Cook, which had revenue of 7.4 billion pounds last year, said in June it was in talks with Fosun about a possible transaction.A deal would reflect the renewed aggression of Fosun’s dealmaking, a spree that comes three years after China started reining in overseas investments by some of the country’s biggest and most indebted business groups.In 2016, Thomas Cook and Fosun set up a travel agency partnership to cater to China’s wealthiest tourists. As the Asian country’s wealth grows, tourist zones around the world have taken steps to draw more of them, especially big-spending luxury travelers.(Updates with suspension of airline unit sale from second paragraph, updates shares.)To contact the reporters on this story: Jinshan Hong in Hong Kong at jhong214@bloomberg.net;Richard Weiss in Frankfurt at rweiss5@bloomberg.net;Luca Casiraghi in London at lcasiraghi@bloomberg.netTo contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tara PatelFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- Thomas Cook Group Plc’s bonds rallied but its shares fell after China’s Fosun Group said it may help fund a 750 million-pound ($940 million) rescue of the ailing British travel firm that would heavily dilute its stock.

The deal will give Cook’s biggest investor control of the U.K. company’s tour operations and a minority stake in its airline, the sale of which will be put on hold, while swapping debt for equity and issuing new shares, Fosun Tourism Group said in a statement Friday.

The talks are advanced, with the money set to provide liquidity through the traditionally slow winter season, according to London-based Thomas Cook. A takeover of a tour operator with roots dating to 1841 would mirror the Asian insurance-to-drugs conglomerate’s acquisition of Club Med, the French resort chain it bought in 2015 and has boosted by bringing in more Chinese tourists.

“This plan will put the company on a totally different financial footing with a massive reduction of debt,” Thomas Cook Chief Executive Officer Peter Fankhauser said on a call. “While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution.”

He added that while existing stockholders face having their stakes diluted under the plan, they have an opportunity to reinvest alongside Fosun.

Cook’s bonds jumped 18% on the news, gaining as much as 6 cents on the euro to 40 cents. Its shares fell as much as 50%, the most since 2011, to a record low. They were trading down 46% as of 12:35 p.m. in London, taking declines this year to 77% and valuing the company at 109 million pounds.

Margins at Thomas Cook have been shrinking amid a sluggish European vacation market as more people holiday at home following last summer’s heatwave. Uncertainty over the economic impact of Brexit has also weighed on demand, with tour operator bookings down 9% this summer and airline sales 3%, leading the company to predict lower second-half operating profit.

A deal would require agreement from stakeholders and regulators, Cook said, adding that its main lenders are supportive of a recapitalization. A group of bondholders is in “constructive dialogue” with the company, according to their financial adviser Houlihan Lokey Inc. and law firm Milbank.

“Fosun is hoping Thomas Cook’s brand name and global reach will expand its business among wealthy Chinese tourists,” said Andrew Collier, managing director at Orient Capital Research.

Fosun already owns about 18% of Thomas Cook, and protecting that stake may also have prompted its owner, Guo Guangchang, to agree to the rescue, said Brock Silvers, managing director at Kaiyuan Capital in Hong Kong. Investment in an unprofitable business in a declining sector is otherwise “puzzling.”

The refunding plan means the mooted sale Cook’s airline business has been “paused,” according to the company’s statement, though Fankhauser said it may be resumed. A number of carriers had looked at the assets, though none indicated that they would bid.

Sanford C. Bernstein Richard Clarke and Harry Martin said in a note that the recapitalization “effectively admits failure in the process to sell the airline,” leaving an intervention from Fosun “the only option to save the business.”

Creditors had been seeking to exit loans on concern that Cook’s declining performance would weaken its ability to repay debt that totaled 1.9 billion pounds as of March 31, according to data compiled by Bloomberg.

In May, S&P Global ratings and Fitch Ratings pushed the company’s credit score deeper into junk territory, citing high indebtedness.

Thomas Cook, which had revenue of 7.4 billion pounds last year, said in June it was in talks with Fosun about a possible transaction.

A deal would reflect the renewed aggression of Fosun’s dealmaking, a spree that comes three years after China started reining in overseas investments by some of the country’s biggest and most indebted business groups.

In 2016, Thomas Cook and Fosun set up a travel agency partnership to cater to China’s wealthiest tourists. As the Asian country’s wealth grows, tourist zones around the world have taken steps to draw more of them, especially big-spending luxury travelers.

(Updates with suspension of airline unit sale from second paragraph, updates shares.)

To contact the reporters on this story: Jinshan Hong in Hong Kong at jhong214@bloomberg.net;Richard Weiss in Frankfurt at rweiss5@bloomberg.net;Luca Casiraghi in London at lcasiraghi@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tara Patel

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.