March 6, 2015 / 8:45 AM / 4 years ago

Britain's Thomas Cook soars after China's Fosun buys stake

SHANGHAI/LONDON (Reuters) - China’s Fosun International (0656.HK) has bought a 5 percent stake in Thomas Cook Group (TCG.L), deepening its foray into Europe’s tourism sector and potentially helping the British company to compete with travel leviathan TUI Group (TUIT.L).

A sign is seen outside a Thomas Cook shop in central London, November 26, 2014. REUTERS/Suzanne Plunkett

News of the investment, which the companies said came after two years of talks, sent Thomas Cook shares soaring by as much as 24 percent to 150.2 pence, their highest level for more than nine months.

Fosun paid 92 million pounds ($140 million) for the Thomas Cook stake and will seek to double its holding in the world’s oldest travel group to 10 percent, it said in a filing to the Hong Kong stock exchange on Friday.

Thomas Cook said that it expects the tie-up to enhance earnings in the financial year to Sept. 30, 2016, assuming plans under the partnership are implemented in 2015.

The jump in the company’s share price turns around a 13 percent decline after the surprise departure of former CEO Harriet Green in November and a further drop after it warned in February of a tough trading environment in Europe.

TAKEOVER TARGET?

The president of Fosun’s tourism and commercial group, Qian Jiannong, told reporters that the group does not plan to use the investment as a first step towards acquiring Thomas Cook in its entirety, but the Chinese company has some form with such maneuvers.

In February it finalised the acquisition of France’s Club Med CMIP.PA in a $1.15 billion deal, having first bought a 7 percent stake in 2010.

“That the Chinese are taking a 10 percent stake in Thomas Cook will underpin the share price now. If it ever falls again, people will say it could become a bid target,” Panmure Gordon analyst Karl Burns said.

Thomas Cook said the boost to future earnings would come from plans to explore collaboration opportunities with Club Med, which Fosun is positioning for a more aggressive move into fast-growing markets such as China as it seeks to turn around the French company’s struggling European operations.

The tie-up would also help to accelerate Thomas Cook’s plans to develop its Concept range of high-margin premium resort hotels, the British company said, adding that it will also aid expansion in China over the medium term as the two groups tailor new resorts to Chinese customers.

Those steps could strengthen Thomas Cook’s ability to compete against the world’s biggest tourism and leisure company TUI Group, which was formed in December from the merger of London-listed TUI Travel and German majority owner TUI AG.

FINANCIAL FLEXIBILITY

Thomas Cook has been in cost-saving mode since 2012, after the euro zone debt crisis and political turmoil in Egypt and Tunisia left it struggling with its debt load, but it is looking to expand the Concept portfolio to drive future growth.

Fosun’s purchase, in the form of a new share issue at 125.59 pence a share, is being undertaken by Fosun’s subsidiary Companhia de Seguros. The price represents a 4.1 percent premium to Thomas Cook’s closing price on Thursday. The other 5 percent tranche will be bought in the open market.

The 92 million pound proceeds from the deal will give Thomas Cook more financial flexibility, Chief Financial Officer Michael Healy told analysts, putting it in a stronger position to negotiate on bank debt.

As part of the tie-up, the two companies will create a hotel fund partnership, with the Chinese group buying Concept hotel properties from independent owners and Thomas Cook managing them. The move will help the British business to maximize occupancy and potentially raise margins at those resorts.

“Thomas Cook ... will reap the benefit of Fosun’s capital in accelerating the rollout of Concept hotels,” Jefferies analysts said in a note.

Thomas Cook estimated the size of the hotel fund, in which it won’t invest, would need to be about 350 million euros ($384 million) to 500 million euros to acquire an initial 30 hotels, mainly in the Mediterranean.

($1 = 0.6559 pounds)

($1 = 0.9121 euros)

Editing by Muralikumar Anantharaman and David Goodman

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