Hong Kong-listed Fosun Tourism HK:1992 is poised to rescue Thomas Cook (TCKGY) , the world's oldest travel company, in a £750 million (US$941 million) bailout with lenders. If completed, the deal would be one of the largest-ever investments into a British business by a Chinese company, as Chinese travel operators follow their customers by expanding into overseas leisure and tourism.
The deal was announced Friday by Thomas Cook as being in "advanced discussion." It would leave Fosun, which is already the largest shareholder of Thomas Cook at 18%, with a controlling stake in Thomas Cook's tour operator and a minority stake in its airline business.
It's a surrender on the part of Thomas Cook, which was founded in 1841, particularly for its equity shareholders. Existing shareholders will be "significantly diluted" as part of the recapitalization. The exact details aren't finalized, but they won't be left with much.
"While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees," Thomas Cook CEO Peter Fankhauser explained in the company's statement.
So shares in Thomas Cook L:TCG have been savaged in London on Friday, down 48.0% as I write. That brings them to their lowest level since the current iteration of the company was formed in 2007. Since then, the shares have fallen from £320 per share to £7.06, and the company from a market cap of £4 billion down to £203 million.
A company made famous by its high-street travel agencies and business selling traveler's checks is struggling mightily for relevance in an online world. Bookings for the travel agency for this summer are down 9%, it warned today, with airline bookings off 3%. So it alerted that operating profit for the second half of the year will be lower than the same time in 2018. It's been a dreary repeating story in recent years.
Fosun will clearly be hoping that the dramatic increase in Chinese outbound travel will feed into the British business. Although Chinese travelers are equally digitally adept, Chinese companies are still figuring out how best to serve them beyond the country's borders. This deal would increase Fosun's foreign footprint, which could prove useful as independent Chinese travelers get more international experience and look for greater variation in destinations.
Fosun Tourism closed up 2.3% in Hong Kong trade. Its investors haven't exactly had life easy, with shares off by 20.1% since the tourism business split off from its parent in December 2018. That's a significant underperformance of the benchmark Hang Seng index, which is up 10.2% in 2019.
Thomas Cook says it is in a desperate state. The £750 million in new cash would give it the liquidity simply to do business over this winter season, the company said, and offer "financial flexibility" for the future.
Fosun Tourism already owns and operates the Club Med line of resorts, and a resort called Atlantis Sanya on Hainan Island, the "Chinese Hawaii." It is the growing tourism arm of the huge conglomerate the Fosun Group, co-founded by Guo Guangchang, who sees himself as China's answer to Warren Buffett.
The group has another separate Hong Kong listing Fosun International HK:0656 that holds its health care, property and financial businesses.
The Fosun Group also owns the Premier League team Wolverhampton Wanderers, where it has already demonstrated considerable success taking over a venerable British brand fallen on hard times. Mind you, the Premier League is booming, while the traditional travel-agency business is in terminal decline.
Fosun has been an immediate hit with fans with its purchase of "Wolves," one of the most storied teams in British soccer history, but which was mired in a slump. From the British Midlands, and founding members of the Football League, Wolves won the English top league three times in the 1950s. But they were in the bottom half of England's second division when Fosun bought them for £45 million (US$56 million) in 2016, promising to invest another £30 million.
The Chinese company has quickly worked around the general public skepticism of the many foreign owners in British football. Like the Thai owners of Leicester City, the Chinese owners have turned themselves into firm fan favorites thanks to success on the pitch.
Fosun in just two seasons oversaw promotion for Wolves into the Premier League, where they had a very successful first season that just ended in May. Each season in the Premier League is worth at least £100 million (US$125 million), even if you finish last, and get relegated. But Wolves saw stunning success, finishing 7th behind only England's "Bix Six" teams. That means they have qualified to play in the UEFA Europa League this fall, guaranteeing a further payday.
Investing wisely in predominantly Portuguese players, and a Portuguese manager, has worked for Wolves on the pitch. There is no clear path to turning Thomas Cook around - Portugal is a well-worn destination for the British that they can reach with budget airlines and online hotel bookings, without the help of a travel agency.
Just as a minor note, but we're excited in my soccer-loving household that Fosun's Wolves team have this week signed a player from Hong Kong. Dai Wai-tsun has knocked around with lower-league teams Reading, Bury and Oxford United since moving at the age of 12 to England, where he calls himself Tsun Dai to make things easy (Dai is his family name).
Dai, who is now 19, has joined the U23 squad at Wolves, a team that now has five players with Chinese heritage on its books. Dai, a central midfielder, would be the first Hong Kong player in modern times to play in the "big leagues" of Europe if he ever makes the Premier League. A lot of fans see his signing from Oxford, where he never appeared for the first team, as a marketing ploy.
Chinese sponsors are now common across Europe's top soccer leagues, companies mostly using the broadcasts to sell back into China. Everton were the first Premier League team to sign a player from mainland China, when they took "China's David Beckham," the midfielder Li Tie, onto their books in 2002. But Li succumbed to injury after one successful season in England. Only the defender Sun Jihai, who spent six years at Manchester City, can be said to have been much of a success as a Chinese player in the Premier League.