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Thomas Cook is in advanced talks with its largest shareholder Fosun Tourism Group over a $940 million (£750 million) injection that will likely see the company broken up.
Under the proposal, Fosun will end up owning a controlling stake in the tour operator and a minority interest in the airline. Existing creditors will then take a minority stake in the tour operator and a majority stake in the airline.
European Union law prevents companies from outside the bloc owning majority stakes in airlines.
The new plan supersedes the strategic review of the airline and approaches for the tour operator, implying that any of the offers were not viable. The company has been struggling under onerous debt repayments and has faced external challenges such as last summer’s European heatwave and Brexit.
The new money will “provide sufficient liquidity” for Thomas Cook to get through the quieter winter season as well as the “financial flexibility to invest in the business for the future.”
Shares in the company plunged by more than 40 percent following the announcement, with shareholders likely getting meagre returns on their investments.
“The proposal is subject to certain conditions and reaching agreement with a range of stakeholders and receipt of regulatory approvals,” CEO Peter Fankhauser said on a media call on Friday.
Thomas Cook is aiming to have the deal agreed by September with regulatory approval sealed by the end of the year.
While the deal is clearly bad news for shareholders it does provide some encouragement for staff and holidaymakers who have already booked trips for the summer.
Thomas Cook has suffered for years from crippling debt repayments following the last time it underwent a major restructure in 2012.
The debt burden of $2 billion (£1.6 billion) has over the last 7 years cost the company $1.5 billion (£1.2 billion) in interest and refinancing costs or in other words it had to sell 3 million holidays just to pay off this burden.
“This time it is a plan which puts the company on a totally different financial footing with massively reduced debt levels,” Fankhauser said.
Fosun has been a shareholder in Thomas Cook since 2015, and has gradually increased its shareholding over the year to just over 18 percent. It owns resort operator Club Med and partners with Thomas Cook as part of a joint venture in China.
“While the above discussions are continuing, no definite or non-binding agreement has been reached as at the date of this announcement and there may or may not be any participation in the recapitalization,” Fosun said.