Thomas Cook shareholders face being wiped out after the travel firm said it was in “advanced discussions" with lenders and its largest shareholder on a plan to inject £750m and hand control of its tour operator business to Fosun.
The proposed deal would see banks and bondholders take a majority stake in Thomas Cook’s airline and a minority stake in the tour operator unit as part of a debt-for-equity swap.
Fosun, which owns 18pc of Thomas Cook as well as holiday company Club Med and Wolverhampton Wanderers FC, will hold a “significant minority stake” in the airline if the deal goes ahead. As a non-EU investor, Fosun is barred from holding more than half of the shares in the airline.
Thomas Cook boss Peter Fankhauser admitted the deal was “not the outcome any of us wanted for our shareholders” and that it “comes at the cost of a significant dilution” of existing investors.
However, he insisted the plan was “the best option” for company stakeholders, including employees, customers and suppliers.
Thomas Cook’s corporate bonds rallied by as much as 18pc following Friday's announcement.
Meanwhile, shares in the 178-year-old package holiday pioneer hit a record low, halving on Friday afternoon to 6.7p. The firm’s market value has plunged to just over £100m, down more than 90pc over the past year.
The troubled travel company has been battling a decline in bookings and Brexit uncertainty, which it blamed in part for a £1.5bn half-year loss in May. The shares were labelled worthless by City analysts after the figures were revealed.
The £750m recapitalisation is expected to help Thomas Cook tackle its colossal debt pile. Mr Fankhauser said the firm had spent £1.2bn on interest payments and refinancing costs since 2012 and that it had to sell 3m holidays a year just to service its debt burden.
The company said the “challenging” European travel market had affected its ability to sell some or all of either its airline or tour operator business at an acceptable price.
Thomas Cook is slashing costs in the second half of its financial year amid tough trading and higher fuel costs, including axing 150 roles from its head office in Peterborough. In May, it also signalled possible further store closures, having already announced plans in March to shut 21 stores and axe 320 retail jobs.
Mr Fankhauser said that Thomas Cook hoped to win regulatory approval by the end of the year, but warned: "It is not a deal, it’s a plan. Lots more has to happen.”
He refused to be drawn on what the deal would mean for his own future and whether he expected to remain at either the airline or tour operator business.
"Today’s announcement is really not about me,” he said. “My priority is to deliver the plan and then time will tell.”
The proposed deal was welcomed by commentators and unions.
"It is reassuring that despite not yet being a certainty in terms of the eventual outcome, Thomas Cook is looking to retain as much of the business, and the jobs that come with it, as possible,” said Chris Hunt, a partner at law firm Gowling WLG.
"As ever the devil will be in the detail. For now, though, the outlook ... looks promising."
The British Airline Pilots Association also came out in support of the deal and called on the Government to lend its support. Thomas Cook employs 600 pilots.