Travel operator, which had already asked for £750m, wants to stave off winter cash crunch

This article is more than 1 year old

This article is more than 1 year old

Shares in Thomas Cook have slumped after the travel operator said it was seeking to raise another £150m from investors – after already asking for £750m – to stave off a Christmas cash crunch.

Thomas Cook said it was in advanced discussions with its banks and Fosun, the Chinese conglomerate and its biggest shareholder, over the “substantial new capital investment”. Shares fell by a fifth on Monday to 7.5p, raising doubts about the company’s survival.

The British travel company, which traces its history to 1841, has struggled in recent years as a result of large debts, intense competition and structural change to an industry lumbered with large branch networks when customers have switched to online bookings.

Unseasonable weather and the impact of Brexit uncertainty on consumers’ travel plans have added to its woes in recent months, pushing it to a £1.5bn loss for the six months to 31 March.

Rival holiday firms LateRooms and Super Break, owned by the Malvern Group, collapsed at the beginning of this month with about 200 job losses. The Manchester-based tour operator On the Beach issued a profits warning last week as a result of the sharp decline in the value of the pound pushing up holiday prices. Many smaller firms such as On the Beach do not pay out to hedge their currency risks.

Quick guide The history of Thomas Cook Show Hide Thomas Cook owes its name to a humble and deeply religious 32-year-old cabinet-maker who, one June morning in 1841, hiked the 15 miles from his home in Market Harborough to Leicester, to attend a temperance meeting. The former Baptist preacher believed that the ills of Victorian society stemmed largely from alcohol and, presumably fatigued from his walk, realised he could deploy the power of Britain’s flourishing rail network to help spread the word. Addressing the temperance meeting, he suggested that a train be hired to carry the movement’s supporters to the next meeting in Loughborough. Thus, on 5 July 1841, some 500 passengers travelled by a special train for the 24-mile round trip, paying a shilling apiece. Over the next few years, Cook laid on ever more trains, introducing thousands of Britons to train travel for the first time. The first such outing to be run for commercial purposes was a trip to Liverpool in 1845. Over the next decade or so, the business expanded to offer overseas trips, to France, Switzerland, Italy and beyond, to the US, Egypt and India. His more business-minded son John expanded the tour operator and its reach was such that the government enlisted its expertise in an effort, ultimately in vain, to relieve General Gordon at the siege of Khartoum in 1885. John’s three sons inherited the business, which incorporated as Thos Cook & Son Ltd in 1924 and benefited from the increasing ease of international travel. Its first flirtation with collapse came during the second world war, when the government requisitioned some of its assets and it was sold to Britain’s railway companies, effectively a nationalisation. But it boomed in the postwar years as growing prosperity fuelled the appetite for holidays and it returned to private ownership in 1972. Since then, it has changed hands and changed shape via a series of mergers and takeovers. It nearly collapsed in 2011 but averted its demise with a bailout deal funded by banks. Now, after 178 years of operation, it has ceased trading.

Thomas Cook’s share price was a far cry from highs of 140p reached as recently as May 2018. The former FTSE 100 blue chip is now valued at around £110m.

The latest request for cash came a month after Thomas Cook revealed it was in talks over a £750m rescue deal with Fosun, a Shanghai-based company with diverse interests that include Wolverhampton Wanderers football club, insurance and property businesses and the Club Med tourism brand.

Thomas Cook put its airline up for sale in February in a bid to raise cash. It said in May that it had received interest from seven bidders, but was unable to do a deal and instead turned to Fosun to rescue the holiday business and take a minority stake in the airline. EU rules prevented Fosun taking full control of the airline. Thomas Cook’s chief executive, Peter Fankhauser, described the deal at the time as “not the outcome any of us wanted”.

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The company said today that the new £150m would provide it with liquidity headroom during the winter months, when travel operators generally run low on cash after bulk-buying hotel space before a surge of bookings for the next summer. It expects the bailout to be concluded in early October.

Those shareholders that have remained with Thomas Cook are expected to have the value of their shares “significantly diluted” by the bailout. They include Marathon Asset Management, Jupiter Asset Management and Neset Kockar, a Turkish tourism entrepreneur.

Kockar has built up an 8% stake in the business, boosting the shares before Monday’s announcement. He demanded last week that he be involved in the turnaround talks.

Under the terms of the proposed deal, about £1.7bn in debt will be converted to equity alongside the £900m cash injection in order to help pay down the company’s £1.2bn in net debt reported at the end of March.

Fosun has yet to decide on any reorganisation of the tour operator’s business, prompting concern about the future of the 21,000-member workforce. The company has 563 high street branches in the UK.