We knew it was coming, and we knew that no matter what the final terms were, its share price was probably going to take a hit. It’s no surprise then that shares in Thomas Cook (LSE: TCG) currently stand just above the 5p mark, following news yesterday that the company has agreed the main terms of a £900m rescue deal.
Though one may expect a rescue package to help the prospects of a company itself, unfortunately for shareholders, the terms of any such deal may in fact be to their detriment. Simply put, anything that causes the shares to be delisted, depending on exactly how the company goes about this, could take the value of the stock all the way to the bottom.
Thomas Cook explained that Chinese conglomerate and major shareholder Fosun will be putting up £450m in exchange for “at least” 75% equity in the travel business and 25% in its airline. At the same time, the company’s current lenders – predominantly banks and bond holders – will put up an additional £450m for effectively inverse terms; 25% of the tour operations and 75% of the airline.
This is not good for current shareholders, and should be a red flag for anyone who was considering investing because of the falling price. Though the full impact on current shares is unknown, Thomas Cook admits the deal will mean anyone holding stock will see their position “significantly diluted”.
What in my opinion is perhaps more worrying, was the company’s affirmation (if you can call it that) that it plans for the stock to remain listed. This seems somewhat counter-intuitive perhaps, but the company’s statement, far from reassuring me, makes me think a delisting is almost inevitable.
“The current intention of the board is to maintain the company’s listing. However, the implementation of the proposed recapitalisation may, in certain circumstances, result in the cancellation of the company’s listing,” it said.
Hardly fighting talk. In my view, if anything it’s a surprise that the stock isn’t down even more than it currently is. I suspect this is more a factor of large shareholders selling their shares slowly, perhaps holding on for a short-term bounce, rather than any fundamental belief in the upside.
Even if Thomas Cook doesn’t delist, I can’t see how the terms of the recapitalisation package will leave any real gains to be had for the average investor.
Where to put my money?
Unfortunately for anyone looking to invest in the UK travel or airline sectors at the moment, there don’t seem to be many good places to put your money. TUI and Ryanair are just two examples of the suffering sector, and with the continued delays to Boeing getting its 737 Max back in the air, any firm that is reliant on that specific aircraft will continue to suffer (there may eventually be compensation paid out).
It is perhaps best then, to avoid the sector altogether for now. There are many shares elsewhere that offer better opportunities, but unfortunately for Thomas Cook, I can’t think of a company I’m less likely to invest in at the moment than it.
Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.