Thomas Cook, Britain’s oldest package holiday operator, could be split up in a takeover that may lead to its high street stores and package deals being bought by a Chinese conglomerate.
The company, which is struggling with a fall in demand for package holidays and fierce online competition, is being circled by potential bidders after a string of profits warnings and an 80% drop in its share price over the past year.
Fosun, a Chinese company and the largest Thomas Cook shareholder, is among a number of groups to have expressed interested in buying all or part of the business.
The expressions of interest in Thomas Cook’s tours business, which was first reported by Sky News, came after the company put its airline up for sale.
Thomas Cook has said it would consider all options as it turns its focus on to increasing investment in directly owned hotels, which are generally more profitable. A source close to the company said it should not be seen as surprising that rivals have made speculative approaches for other parts of the business.
EU rules banning majority foreign ownership would block Fosun from running Thomas Cook’s airline arm, but the company’s tour operations would add to Fosun’s 2015 purchase of the French travel company Club Med.
Fosun, which holds a 17% stake in the 178-year-old tour operator, already runs a joint-venture with Thomas Cook in China. Fosun’s board is chaired by Guo Guangchang, who rose from rural poverty to become one of China’s richest men.
A bid from a private investor with deep pockets could prove attractive after a torrid year. Thomas Cook’s shares traded above £1.40 in May 2018, but have since declined to close at 24.5p before the bank holiday. That left its market value at about £376m, compared with a net debt of £1.6bn.
Thomas Cook has hired the restructuring specialist Alix Partners to work on balance sheet and cost reduction plans as it tries to tackle that debt pile. The company was this month forced to call for a shareholder meeting to back an extension of its borrowing limits, which it said had inadvertently been broken.
The company, which was founded by a cabinet maker, Thomas Cook, operating day trips from Leicester to Loughborough, issued two profit warnings in two months at the end of last year. In the most recent profit warning, at the end of November, it blamed a “disappointing” year on the prolonged summer heatwave across Europe that diminished consumers’ appetite for travel.
Analysts have previously warned that Thomas Cook may be forced to ask investors for more cash to manage its debts, although it has now passed the period during which cash reserves are usually lowest for the highly seasonal tour companies.
The entire holiday sector is also in the midst of a price war: Thomas Cook’s main competitor in Europe, Tui, has issued profit warnings and the budget airline Easyjet has issued a downbeat outlook.
The online marketplace is also proving tough for Thomas Cook. While 64% of its sales are now made through its website, online travel agencies have been the major beneficiaries of a rise in holidaymakers opting for the internet rather than visiting high street branches.
Last month, Thomas Cook revealed the closure of 21 stores, with the loss of 320 jobs. Analysts expect many more closures across the 566-store network as the company adjusts to the online spending revolution.
Spinning off its airline arm could also prove an attractive source of cash, although some budget airlines have struggled. The British regional carrier Flybmi collapsed in February, Iceland’s Wow Air failed last month and India’s Jet Airways grounded all flights last week.
Thomas Cook faced similar doubts about its survival in 2012, when it was forced to dispose of hotels and part of its airline. The company carried out a rights issue in 2013 in an attempt to shore up its balance sheet.
A spokesman for Thomas Cook declined to comment. Fosun did not respond to a request for comment.