• Bidders gather round Thomas Cook

Fosun has confirmed a move on Thomas Cook, as a number of potential bidders circled the beleaguered company.

It is thought that Thomas Cook’s decision to review its airline business earlier this year had encouraged investors to take a closer look at the group, which has been strengthening its offering in Spain.

Fosun International, which first took a stake in Thomas Cook in 2015, increased its holding in the company to 18% in April.

The end of 2016 saw Thomas Cook and Fosun launch Thomas Cook China as a joint venture, looking to tap into the expected boom in outbound Chinese tourism.

Earlier this year the pair announced two projects, including the first Asian Casa Cook, to be built by Fosun and managed by Thomas Cook China. The two properties follow previously-announced projects with DreamEast Group, a tourist resort development company listed in Hong Kong, for two Thomas Cook Sunwing Family Resorts, one, in Jiashan near Shanghai and the other Hengyang, in southern China.

Shortly after raising its stake in Thomas Cook, Fosun used its full-year results to talk about plans for the asset-light growth of the Club Med brand, which it bought in 2015.  Five resorts were opened over the year, with the brand’s pipeline including developments in France, Canada, Spain and China. The flag was planning to open five resorts a year for the next five years, with the group looking to expansion through management contract. The group currently manages nine resorts, owning 17 and leasing 41.

The end of last year saw Fosun Tourism, the tourism arm of Fosun International, raise USD428m through its IPO, valuing it at USD2.44bn,

Speculation suggested that Fosun might face competition from EQT and KKR, which own Kuoni Group and Travelopia respectively.

February this year saw Thomas Cook confirm that it was reviewing its airline having recognised that the company needed “greater financial flexibility and increased resources to accelerate the execution of our strategy of differentiation”.

There were mixed feelings about the potential success of selling the airline to reduce Thomas Cook’s GBP1.2bn debt. Berenberg said that the airline could have an equity value of GBP600m, commenting: “We do not believe the company would be able to refinance its existing debt unless proceeds from the airline are meaningfully higher than we estimate. We believe that management would be unwise to rely on the sale of the airline to dig it out of trouble.”

Mark Brumby, principal, Langton Capital, added: “Yes, Thomas Cook Group would reduce its debt but it would need to buy ‘lift’ from someone. It would very likely sell its airline with a contract to use it for many years. To this extent, it would be just swapping one liability for another.

“Also, as the group would own less of the value chain, it would expect to make lower margins over the longer term. This would come with a lower level of risk but, given the uncertainties at Thomas Cook Group, it is hard to conclude that it is making these moves from a position of strength.”

The company could be further broken up after Thomas Cook confirmed that it had received “a highly preliminary and unsolicited indicative offer” from Triton Partners for its Northern Europe business. The operation comprises the group’s tour operator and airline in Norway, Sweden, Finland and Denmark.

Thomas Cook reported that underlying Ebita loss had increased by GBP65m to GBP245m for the half year, reflecting margin pressure in the tour operator.

Peter Fankhauser, CEO, said: “The first six months of this year have been characterised by an uncertain consumer environment across all our markets. The prolonged heatwave last summer and high prices in the Canaries reduced customer demand for winter sun, particularly in the Nordic region, while there is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.”

He told analysts that the company was “well advanced” in its aim to build its position “as one of the leading sun and beach hotel companies in Europe”. The group has a pipeline of 20 own-brand hotels due to open this year, “reinvigorating key destinations across the Med”.

 

HA Perspective [by Katherine Doggrell]: While the vultures circle, Thomas Cook has been ploughing on, last week announcing plans to invest EUR40m at 10 managed own-brand hotels in Spain over the next year.

Enric Noguer, chief of hotels & resorts, said: “Our business in Spain goes from strength to strength as we invest in senior talent in our hotels division in Palma and increase the number of hotels that we manage directly.

“We want to continue bringing our new hotel innovations to Spain and support the continued growth of the tourism industry by investing in great brands and ensuring the well-established destinations are attractive to a new generation of travellers.”

In this possibly-last roll of the dice the group is doubling down on Spain, showing faith in a territory which let it down last year (well, the climate let it down, with Blackpool becoming Spain, albeit briefly. And a political calming reduced the need for safe havens). The company is sticking to its knitting in its key market, something which will only make it more attractive to Fosun.

 

Additional comment [by Andrew Sangster]: Fosun does things differently to equivalent companies in the West. Its mission statement, for example, is: “Creating happier lives for families worldwide”.

It says its vision is: “Rooted in China, creating a global happiness ecosystem fulfilling the needs of one billion families in health, happiness and wealth ecosystems.”

In particular, it talks about a C2M model where customers, the c bit, and makers, the m bit, are connected “seamlessly” through “technology leadership”.

The Youle Customer Loyalty Program is emblematic of this approach. It connects Fosun businesses such as hospitals with its tourist enterprises. A new take on health tourism

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