Thomas Cook collapses following failed last ditch rescue talks

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International tour operator, Thomas Cook has today collapsed, after last-minute talks to save the firm failed.

Negotiations aimed at saving the company failed to reach a positive conclusion and the company has now fallen into compulsory liquidation.

Further to the announcement made on 20 September 2019, the Thomas Cook Group continued to engage with a range of key stakeholders over the weekend in order to secure final terms on the recapitalisation and reorganisation of the company.

Those discussions did not result in an agreement between the company’s stakeholders and proposed new money providers. Today the company’s board has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect.

An application was made to the High Court for a compulsory liquidation of the company before opening of business today and an order has been granted to appoint the Official Receiver as the liquidator of the Company.

Peter Fankhauser, Chief Executive of Thomas Cook commented: “We have worked exhaustively in the past few days to resolve the outstanding issues on an agreement to secure Thomas Cook’s future for its employees, customers and suppliers. Although a deal had been largely agreed, an additional facility requested in the last few days of negotiations presented a challenge that ultimately proved insurmountable.

“It is a matter of profound regret to me and the rest of the board that we were not successful. I would like to apologise to our millions of customers, and thousands of employees, suppliers and partners who have supported us for many years. Despite huge uncertainty over recent weeks, our teams continued to put customers first, showing why Thomas Cook is one of the best-loved brands in travel.

“Generations of customers entrusted their family holiday to Thomas Cook because our people kept our customers at the heart of the business and maintained our founder’s spirit of innovation.

“This marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world.”

The Company has requested that its ordinary shares be suspended from listing on the premium segment of the Official List of the FCA and from trading on the main market of the London Stock Exchange with immediate effect.

Rebecca Thornley-Gibson, partner at city law firm DMH Stallard

Most of the travel industry were on a constant refresh on their phones in the early hours of this morning anxiously waiting to see if their worst fears would be allayed.

Devastatingly for the industry they were not and the Thomas Cook Group disappeared from the travel landscape at 2am this morning.

There are, and will continue to be. multiple impacts from the loss of 9000 jobs in the UK in Thomas Cook. The impact on a short term basis will be mitigated by the rights of employees to claim payments including arrears of pay, statutory redundancy, holiday and notice payments from the Insolvency Service. If these are paid promptly
employees will at least have some time to catch their financial breath as they seek alternative roles elsewhere.

A very sad day for Thomas Cook, the travel industry and all those ancillary supply services that will now face uncertainty due to their future loss of revenue.

Sam Talby, Partner at PCR LLP

Thomas Cook has entered Compulsory Liquidation, the Official Receiver in the first instance will act as Liquidator of the company.

Its demise has reflected the well-publicised shift in how UK consumers buy their holidays. Thomas Cook’s business model of numerous High Street outlets selling packaged holidays to the masses worked perfectly well in an internet free purchasing environment but when increasingly high overheads and lower margins were sustained the debt laden company was doomed to corporate failure.

With the failure to secure 11th hour funds of £200m, which would have enabled the company to access the Chinese Shareholder, Fosun’s £400m rescue deal, this was a hurdle too far for this monolith of the past. The company actually sought a further £50m in addition to the £200m from its Bankers!

Desperately seeking money is always a difficult thing to achieve when you actually need it; the last gasp attempt was to hold out its hands to the Government! Given the controversy of Carillion, the likelihood of the UK Government committing to £250m was improbable and smacked of quasi nationalisation.

The unfortunate truth for Thomas Cook and its stakeholders, was as a business it carried too much debt and its business model was 20th Century rather than 21st Century in perception.

In the final analysis neither Financiers, Private Equity nor the State saw a future for Thomas Cook otherwise someone would have acquired the business albeit through an Administration process.

This failure of an iconic brand is almost Shakespearian as another household name has now gone. Staff who have lost their jobs and holidaymakers, who booked or are currently on holiday, are the ones at the coalface of this insolvency and my sympathies go out to them.

George Lawrie, Vice President & Principal Analyst at Forrester

Thomas Cook carried a great deal of debt on its balance sheet and share prices have been in steep decline since 2011. A primary reason for this is that it believed it had to own assets in order to make money. Acquisitions since 2008, including Hotels4U, Elegant Resorts and Gold Medal International, as well as a significant investment to bring back its licence to operate the Thomas Cook brand in the Middle East and Asia, meant the company had essentially been on a ten-year spending spree. It was an asset-heavy enterprise in an asset-light digital economy.

Another problem is that there have also been cases of apparent commercial mis-judgements. For example, in 2009, Thomas Cook signed a deal with Octopus Media Technology to host, upload, and provide an online video player for Thomas Cook TV. In spring of that year, Thomas Cook UK signed a deal with international entertainment supplier, The E3 Group, to exclusively supply entertainment to the group. Leadership must have believed that the point of media was entertainment when digital native companies founded in the ecommerce age know that rich media delivers contextually compelling experiences on the customers’ (mobile) path to purchase. The point is that modern holidaymakers are spoilt by online travel services that use rich media to help them assemble their own choice of air travel, hotel, car rental and experiences using their own mobile devices, enabling them to share pictures, for example, with friends and family before making the booking.

In such a competitive market, companies carrying Thomas Cook’s level of debt cannot withstand any decline in sales. This appears to be a case of ‘over-trading’ – expanding beyond the level of trade that equity can support.

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