Existing shareholders in Thomas Cook (TCG) are set to be the major losers from Thomas Cook’s rescue talks as details of the £750m rescue plan emerge today.
As part of the deal to keep afloat the package holidays firm is suggesting a debt-for-equity swap with lenders that will likely virtually wipe out what's left of any value for currently shareholders.
Unsurprisingly the market hates the idea, sending Thomas Cook's share price crashing more than 46% in mid-morning trading. That leaves the stock changing hands for a little over 7p.
A year ago Thomas Cook’s share price stood at 104p, and the stock ended their first day of trading after listing on the stock market in June 2007 at 320p.
SHARES WORTH LESS
For people who already have shares in Thomas Cook, that means their shares are likely to be worth even less going forward as these banks who’ve lent the company money have now become significant shareholders.
This means the pool of shares in issue is a lot bigger, and is something which tends to drag a share price down.
It also means that if Thomas Cook started paying dividends again in future, as unlikely as it may seem at this point, existing shareholders would get a lower proportionate share of any such dividend.
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But as it stands, the ‘recapitalisation’ as Thomas Cook calls it, is a proposal and still needs approval from shareholders and creditors.
DEAL IN 'BEST INTERESTS OF ALL STAKEHOLDERS'
It’s not entirely certain the deal will be agreed. But Thomas Cook has offered an olive branch to existing shareholders if the agreement is ratified, and said they may be able to ‘participate in the recapitalisation’.
The company has argued it is ‘in the best interest of all the group’s stakeholders’ to agree to the recapitalisation.
It said it needs the £750m injection of cash from the deal so it can continue trading over the winter season, which are never good for travel companies due to the weaker demand for holidays.
Talking about the deal, Thomas Cook chief executive Peter Fankhauser 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.’
