Tourism

Britain's oldest travel firm has seen its stock fall 93% in a year, and it's now set for a Chinese bailout

Key Points
  • Shares of Thomas Cook Group, as of Friday afternoon, are down 93% in the past year and 77% thus far in 2019.
  • The latest freefall came after Chinese tourism group Fosun, Thomas Cook's largest shareholder, announced it was in £750 million ($940 million) rescue talks with the 178-year-old travel company and its lenders.

Britain's most historic travel company saw its share price fall by 46% on Friday after it revealed talks with its largest shareholder would effectively result in a Chinese takeover.

Shares of Thomas Cook Group, as of Friday afternoon, are down 93% in the past year and 77% thus far in 2019. The latest freefall came after Chinese tourism group Fosun, Thomas Cook's largest shareholder, announced it was in £750 million ($940 million) rescue talks with the 178-year-old travel company and its lenders.

Fosun and the banks are considering proposals which could see the conglomerate take control of Thomas Cook's tour business and secure a minority interest in its airline. Thomas Cook has been touting the sale of the airline, but has now halted the process while the funding discussions unfold.

Thomas Cook was founded in 1841 and now has annual sales of £9 billion, 19 million customers a year and 22,000 staff operating in 16 countries, but has been on the receiving end of a perfect storm of market and geopolitical impediments in recent years.

This culminated in a loss of £1.5 billion for the first half of 2019. In March, the firm announced plans to close 21 stores, costing more than 300 jobs.

Thomas Cook has now issued three profit warnings in a year, and is struggling to cut its debts. Even without Brexit complications, online competitors have diminished its traditional appeal, a heatwave in the U.K. caused a dip in summer bookings last year, and its airline has faced increased pressure from low-cost competitors, leading to job cuts and the attempted sale of its airline.

A woman looks at holidays for sale in a Thomas Cook travel agent window in Bristol, England.
Getty Images

The company warned that current shareholders would see the value of their investment "significantly diluted" as a result of the proposed rescue deal with Fosun Tourism Group, which also owns ClubMed and Wolverhampton Wanderers Football Club.

AJ Bell investment director Russ Mould said there would be "very little left on the table for existing shareholders with debt being written off and converted into shares."

He suggested that the woes of the one-time stalwart of the U.K. corporate world exemplified the need for businesses to be careful with their balance sheets, particularly in sectors where costs and earnings can be unpredictable.

"Even the agreement mooted today does not have a clear flight path as it still needs the approval of shareholders and creditors," Mould commented in a note on Friday.

"Anyone who has booked a holiday with Thomas Cook will want to see the refinancing deal sorted as soon as possible so they aren't fretting over whether their holiday provider is actually around to fly them to the beach."