Thomas Cook looks to China’s Fosun to save it

Thomas Cook has commenced talks with China-based Fosun Tourism, a subsidiary of Fosun International, on a £750 million rescue takeover deal on Friday.

‘After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing, the Board has decided to move forward with a plan to recapitalise the business, supported by a substantial injection of new money from our long-standing shareholder, Fosun, and our core lending banks,’ Thomas Cook CEO Peter Fankhauser said.

Thomas Cook share price hits new low after Fosun deal announcement

In the wake of the announcement, Thomas Cook saw its share price fall more than 45% on Friday, with the deal leaving Fosun in control of the tour operator and controlling minority interest in its airline business.

The deal, if completed, will see existing shareholders holdings significantly diluted. However, shareholders may be given the opportunity to participate in the recapitalisation by way of investment alongside Fosun and converting financial creditors on terms to be agreed, the company said.

‘While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees,’ Fankhauser added.

Thomas Cook to become latest turnaround target for Fosun

Fosun International is no stranger to buying up struggling assets in the US and Europe, with the Chinese conglomrate spending billions of dollars over the last 10 years snapping up businesses in healthcare, tourism, fashion.

‘We are committed investors, with a proven track record of turning around iconic brands including Club Med and Wolverhampton Wanderers FC,’ Fosun, which already owns an 18% stake in Thomas Cook, told Reuters.

Thomas Cook: Technical Analysis

Today’s news has sent Thomas Cook down below a critical support level, with the weekly chart highlighting the firm break through 9.2 to create a new record low.

This means we have no support levels to watch out for, leaving few hurdles for any further downside. For the most part, the momentum indicators can be disregarded, with the stochastic likely to remain oversold throughout this downtrend.

Meanwhile, when you look at the four-hour chart, there is a clear downtrend that traders can follow, with the recent breakdown providing us with the next leg of a clear bearish patter.

The ability to remain within this trend of lower highs and lower lows is important here, and thus a bearish outlook remains in play unless we break through the June peak of 19.9 peak.

On that same note, should we see a short-term rebound, it would be deemed a retracement to be shorted rather than a reason to buy this stock.