Shares in Thomas Cook (TCG.L) plummeted by almost 50% to a record low on Friday, as takeover talks with Chinese firm Fosun and a range of banks wiped tens of millions off the value of the troubled travel operator.
The stock price of one of the most iconic names in British travel hit rock bottom in earling trading, dropping from just over 13p to as low as 6p as investors took fright.
It came after reports broke that Fosun, its largest shareholder, could offer a £750m cash injection into the company, which has suffered from falling demand for package holidays and high debt.
A spokesperson for Fosun Tourism Group told Yahoo Finance UK:
“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.”
The share price then recovered to around 8p, down 37% on the previous day. Last year, Thomas Cook shares were worth around £1.
The group is in rescue talks with banks and Fosun over a potential takeover of its tour operating unit.
While the measures have not been finalised, the Chinese investment conglomerate is set to buy Thomas Cook’s tour business.
A major cash injection of around £750m would also allow Thomas Cook to gather enough money to trade through to the end of next year and invest.
Peter Fankhauser, CEO of Thomas Cook, said that while the the proposal was "not the outcome any of us wanted," it was "pragmatic" given the circumstances.
“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,” 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.”
Thomas Cook has encountered a range of issues over the last year, leading to job cuts and store closures. The travel group also put its airline business up for sale after a heat-wave in northern Europe last summer put holidaymakers off last-minute deals.
This led to a number of profit warnings. Thomas Cook warned earlier this year that the European travel market has become "progressively more challenging," which has led to a dent in its finances and has made it difficult to sell its tour business. This is why it has now entered talks with banks and Fosun.
“Whilst this has long been seen as the likely route out of the mire for Thomas Cook, there are several questions remaining, for instance how would this deal impact the proposed airline sale?
“Management say they are pausing the sale but it likely be dead if Fosun take over,” Neil Wilson, chief market analyst at Markets.com, said.
“Given the current environment, it may have been harder to offload the airline than thought, at least at a price that worked for Thomas Cook. ‘
“Indeed management note that the ‘progressively more challenging’ market environment has affected its ability to execute a disposal of the airline ‘in a way which returns satisfactory value to the group’.
“Fosun wants the lot, airline and all. There are also questions on the Fosun side in terms of debt.”