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Thomas Cook Offers a One-Day Holiday in the Sun

Andrea Felsted
Thomas Cook Offers a One-Day Holiday in the Sun

(Bloomberg Opinion) -- Like the offer of a week’s vacation in the sun amid a washout summer at home, some good news has arrived at last for Thomas Cook Plc’s shareholders: Fosun International Ltd. is interested in a potential bid for the beleaguered British travel company’s tour operating arm.

An approach from the Chinese group, which already owns an 18% stake in Thomas Cook, offers some respite for the U.K. company, which has been in a battle to show that it retains much equity value. Its shares rose about 10 percent on the news (they’ve fallen 85 percent over the past year).

Things have been fraught for the British company after it warned again on profit last month and acknowledged the uncertainties in a separate plan to sell its airline and access new financing. Fosun’s interest in its tour operator, if followed through, would make things slightly less desperate. The company needs cash to get it through the winter period.

Under European rules, Fosun wouldn’t be able to buy a majority stake in the airline arm, which explains why it’s interested only in the holiday division. But Thomas Cook has had other potential bidders looking at the airline. A possible injection of cash from disposing of the other part of the business would make it less of a forced seller.

There are a wide range of valuations for the holiday arm. Analysts at Citigroup Inc., who have warned that Thomas Cook’s shares might be worthless, estimates an enterprise value of 307 million pounds ($390 million). It’s possible too that Fosun might inject some fresh equity into the group as part of any deal.

But this is still a distressed situation, and equity investors won’t exactly be breaking out the bunting. Fosun has been involved since 2015, when it spent 92 million pounds on a 5% stake at 125.59 pence per share (they’re 17.8 pence now). Other investors would have good grounds for asking why the Chinese company hasn’t acted before now. The writing has been on the wall for Thomas Cook since a series of nasty profit warnings in the final few months of 2018.

Any deal may also be complicated by separate interest from Triton Partners, a private equity firm, in Thomas Cook’s Nordic business. That might inject competitive tension into the process, but it might also make a sale more difficult to structure. Indeed, an offer may not be forthcoming. If Fosun’s interest disappears, the travel group will have to resort to plan A: Pushing ahead with a quick sale of the airline and accessing a new 300 million pound banking facility.

Whatever happens, the share price indicates that there won’t be much left for shareholders. The equity is basically a bet on squeezing more pennies from the situation, maybe through an eventual stabilizing of its business but most probably through takeovers of one or both of its chief assets.

The latter may be looking more likely this week. But as anyone who’s experienced a British summer knows, it’s hard to rely on getting even a few sunny days.

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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