(Bloomberg) -- China’s Fosun Group is considering a 750 million pound ($940 million) rescue of Thomas Cook Group Plc., the world’s oldest travel agency, which has been struggling to raise cash to pay debts amid a slowdown.
The deal would give the Chinese insurance-to-drugs conglomerate control of the British company’s tour operations and a minority stake in its airline, while swapping debt for equity and issuing new shares, Fosun Tourism Group said in a statement Friday.
A takeover of a tour operator with roots dating back to 1841 would fit into Fosun’s plans to grow by buying businesses related to health, wealth and happiness. If successful, a turnaround of Thomas Cook would track Fosun’s revival of Club Med, the resort chain it bought in 2015 and boosted partly by bringing in more Chinese tourists.
“Fosun is hoping that Thomas Cooks’ brand name and global reach will expand its business among wealthy Chinese tourists,” said Andrew Collier, managing director, Orient Capital Research. “Bondholders are expecting this synergy to work, otherwise they wouldn’t convert debt to equity.”
Under Thomas Cook’s proposal, Fosun Group’s tourism unit would get control of tour operations and a minority stake in its airline, while swapping some debt for equity and issuing new shares, Fosun said Friday in a statement. A deal would also require agreement from stakeholders and regulatory approval, the company said.
Hong Kong-listed Fosun International Ltd. already owns about 18% of Thomas Cook, and the takeover talks are at “an advanced stage,” the Chinese company said.
Thomas Cook had total debt of about 1.9 billion pounds as of March 31; net debt was 1.2 billion pounds, according to data compiled by Bloomberg. The company’s shares have tumbled 87% over the past 12 months, cutting market value to 204 million pounds as of Thursday.
Thomas Cook creditors have sought to exit loans on concern the company’s declining performance would weaken its ability to repay. The agency has seen bookings and its bond prices tumble amid concern about slumping travel demand.
In May, S&P Global ratings and Fitch Ratings pushed the company’s credit score deeper into junk territory, citing high indebtedness.
Thomas Cook has been grappling with a tough operating environment since last summer’s heatwave in northern Europe, with many of its sun-seeking customers choosing to stay at home. Uncertainty over the U.K.’s departure from the European Union has also weighed on its business.
The tour operator said in June it was in talks with Fosun Tourism Group about a possible deal. The U.K.-based tour business, which had revenue of 7.4 billion pounds last year, would signficantly expand Fosun’s footprint in Europe.
Taking control of Thomas Cook’s tour business would also give the group “significant synergy with Fosun’s other offshore tourism properties, including Club Med,” said Collier of Orient Capital.
A deal would reflect the renewed aggressiveness of Fosun’s dealmaking, a shopping spree that comes three years after China started reining in overseas investments by some of the country’s biggest and most indebted business groups.
Separately, a consortium led by Fosun is in talks to buy a majority stake in a Russian gold miner, a transaction that could value the target at $1 billion, people familiar with the matter said in June. The company is also considering a joint bid for Bayer AG’s animal-health business, which could be valued at as much as $9 billion.
In 2016, Thomas Cook and Fosun set up a travel agency partnership to cater to China’s wealthiest tourists. As the Asian country’s wealth grows, tourist zones around the world have taken steps to draw more of them, especially big-spending luxury travelers.
The proposed rescue Fosun is considering would “significantly” dilute existing shareholders, who may be given the opportunity to participate in the planned recapitalization, the China-based company said Friday.
(Updates with comment from analyst in fourth paragraph)
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