Thomas Cook Group is in advanced talks about a rescue deal that will see the company effectively broken up and its tour operating arm taken over by the Chinese owner of Club Med.
Sky News has learnt that the world’s oldest package holiday company could announce as soon as Friday morning that it is close to reaching an agreement with Fosun Tourism Group and its lenders to recapitalise the business.
If successfully completed, the restructuring of Thomas Cook will salvage the future of a company which has looked increasingly perilous in recent months.
Banking sources said on Thursday night that the outline of the proposed deal would see Fosun – which is already Thomas Cook’s biggest shareholder – and the British travel company’s lenders injecting hundreds of millions of pounds of new equity and debt into it.
Fosun would become the majority-owner of Thomas Cook’s tour operating arm while it would also own a minority stake in its airline division.
EU ownership rules would prohibit Fosun from controlling the Thomas Cook airline business.
Bankers said that the deal under discussion also involved a substantial debt-for-equity swap, which would inevitably dilute the value of existing investors’ shares in Thomas Cook.
Nevertheless, a comprehensive rescue deal would come as a relief to Thomas Cook’s 21,000 workers and the 11 million customers who are expected to travel with the company during the course of the summer.
Talks between Fosun, Thomas Cook’s lenders and the company are understood to have evolved in recent weeks, with a string of separate offers for its airline said to have been insufficient to pave the way for a recapitalisation of the business.
Under the plans being discussed with Thomas Cook’s banks, much of the company’s £1.4bn debt will be written off and converted into shares, with new investment going into both the tour operator and airline.
Fosun, which has been a shareholder in Thomas Cook since 2015, is understood to see its British peer as a valuable platform for further expansion into the European travel market.
The deal envisaged will, however, spell the potential break-up of the 178 year-old British travel company, as well as a substantial impact on existing shareholders.
A transaction will require both shareholder and bondholder approval, adding to the complexity of Thomas Cook securing its long-term financial future.
Thomas Cook was founded in 1841 by a 32 year-old cabinet-maker and former Baptist preacher who began offering one-day rail excursions from Leicester to Loughborough for a shilling.
From there, it went on to become one of the world’s largest holiday companies, marking its 175th anniversary three years ago.
Thomas Cook and Fosun have a joint venture in China which is showing strong growth, with an eightfold increase in customers last year.
The introduction of own-brand resorts in the world’s second-largest economy has also opened up the domestic Chinese market to Thomas Cook.
In recent months, Thomas Cook has fielded varying degrees in parts or all of its airline, its northern European business, and its tour operator.
Fosun is working with bankers at JP Morgan and Lazard on the proposed deal, while the company is working with several investment banks and its syndicate of lenders is being advised by FTI Consulting.
The company’s shares have fluctuated wildly in the past few weeks amid severe turbulence prompted by a £1.5bn half-year loss.
Credit rating agencies have downgraded Thomas Cook, warning that the company’s current debt structure is unsustainable as it seeks to expand its higher-margin own-hotel concepts and its online business.
Shares in the travel group have slumped by more than 85% during the last 12 months, and faced a further battering recently when analysts at Citi ascribed zero value to its equity.
On Thursday, its shares closed at 13.28p, giving the company a market value of just £185m.
Thomas Cook has become embroiled in an increasingly frantic bid to shore up confidence among consumers and lenders as it pointed to the absence of a Brexit deal’s impact on customers’ willingness to book overseas holidays during the crucial summer period.
Thomas Cook recently said it would close 21 high street shops and pare back its retail workforce as part of an attempt to exert a tighter grip on costs.
A much larger proportion of its 566-strong chain is likely to disappear in the coming years amid changing customer behaviour.
Thomas Cook declined to comment.