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)
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.
News of the investment, which the companies said came after two years of talks, sent Thomas Cook shares soaring by as much as 22 percent in morning trade. At 6.20 a.m. ET the shares were up 18.8 percent at 143 pence.
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.
One of the plans is to explore collaboration opportunities with Club Mediterranee (CMIP.PA), the French holiday company Fosun bought last month, where it is seeking to turn around a business that is struggling in Europe and move more aggressively into fast-growing markets such as China.
"The investment in Thomas Cook complements other recent investments of the group in the sector, providing opportunities for further value creation," Fosun Chairman Guo Guangchang said in the filing, adding that there is increasing demand for international leisure travel.
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 toward acquiring Thomas Cook in its entirety.
Thomas Cook, meanwhile, said the deal would help to accelerate its plans to develop its Concept range of premium resort hotels and aid expansion in China over the medium term as the pair 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.
CONCEPT INVESTMENT
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. Net debt was 1.26 billion pounds at the end of its first quarter, against 1.29 billion pounds a year earlier.
The Fosun tie-up will see the two companies create a hotel fund partnership, with the Chinese group buying Concept hotel properties from independent owners and Thomas Cook managing them, enabling 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.
Shore Capital said that if the deal is earnings accretive from 2016, that suggested at least 10 million pounds of additional profit.
Thomas Cook's Chief Financial Officer Michael Healy estimated the size of the hotel fund, in which Thomas Cook 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.
Fosun's purchase, in the form of a new share issuance 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.
Fosun's bid for Club Med, which valued the company at about$1.15 billion, was finalised in early February.
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