A likely deal between Thomas Cook and its largest shareholder to rescue the company from extinction could cause more problems than it solves, according to an industry analyst.
Thomas Cook Group announced late last week that it is in advanced discussions with Fosun Tourism Group about a proposed recapitalisation and separation of the company, which owns a number of tour operators, airlines, and hotels and resorts.
Under the proposal, Thomas Cook is targeting an injection of £750 million (more than $1.3 billion) of new money “which would provide sufficient liquidity to trade over the winter 2019/20 season and the financial flexibility to invest in the business for the future”.
The recapitalisation proposal will require a reorganisation of the ownership of the tour operator and airline businesses, according to Thomas Cook.
This is expected to result in Fosun owning a significant controlling stake in the company’s tour operator division and a significant minority interest in its airline division.
In a statement, Thomas Cook CEO Peter Fankhauser said: “After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing, the board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our longstanding shareholder, Fosun, and our core lending banks.
“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.”
Johanna Bonhill-Smith, a travel and tourism analyst at GlobalData, said that while Fankhauser is seeking a solution that will allow the company to continue trading in the short-term, the reality is that the CEO had no choice but to consider any deal that was put on the table.
“Ultimately, Thomas Cook is in the position it is because its business model has not majorly evolved since it first began as a typical all-inclusive package holiday tour operator,” Bonhill-Smith said.
“It has failed to adopt strategies to counter the threat of disruptors such as Airbnb and change is now a necessity for the company to succeed.
“The deal with Fosun will provide at least a stay of execution, providing funds to carry on trading as normal over the winter period, but in the longer term there will be drastic changes.”
Bonhill-Smith said if this collaboration is to be truly effective, Fankhauser – alongside the rest of the Thomas Cook Group – need to be fully prepared and ready to accept radical change that is ahead.
“As a modern international investment company, Fosun may encourage Thomas Cook to enhance booking online, causing even more job cuts and future store closures,” she warned.
“If a deal is struck, Thomas Cook will have to let Fosun take the reins, but cultural clashes due to business norms or an overriding strategy could mean the deal causes more problems than it solves.
“Fosun sees value in the traditional tour operator because of its strong brand and global image and is confident of a return on its investment, provided it can impose its preferred operating strategies.
“On the other hand, Thomas Cook sees the deal as a last chance for the company to remain alive within a highly competitive environment.”