Shares in Thomas Cook plummeted by more than 40% after it confirmed talks with its largest shareholder over a deal which would effectively see the firm taken over.
As revealed by Sky News, the world’s oldest package holiday operator said it is in advanced discussions with the Chinese owner of Club Med over a £750m cash injection.
Fosun Tourism Group and the British travel firm’s lenders are looking at proposals which would see the conglomerate take over the firm’s tour business and secure a significant minority interest in its airline.
Stocks plunged more than 44% in early trading on Friday following news of the plans, which would hit existing shareholders.
A spokesman for Fosun said: “Fosun is a shareholder in Thomas Cook, because it is a British company operating in the global travel industry, in which we have extensive experience.
“We are committed investors, with a proven track record of turning around iconic brands including ClubMed and Wolverhampton Wanderers FC.”
Thomas Cook chief executive Peter Fankhauser said: “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 longstanding shareholder, Fosun, and our core lending banks.
“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.”
The company added that the sale process for its airline had been “paused” while the funding takes place.
But Neil Wilson, of Markets.com, said the prospect of selling the airline would probably be “dead” if Fosun takes control of part of the business.
“Given the current environment, it may have been harder to offload the airline than thought, at least at a price that worked for Thomas Cook,” he said.
Thomas Cook has been wrestling with a decline in bookings and uncertainty surrounding Brexit, which it said contributed to the £1.5bn half-year loss it posted in May.
The company is slashing costs in the second half of its financial year in the face of tough trading and higher fuel expenses, including cutting 150 jobs at its head office in Peterborough.
In May, it also signalled possible further store closures, having already announced plans in March to shut 21 stores and axe 320 retail roles.
Alongside the recapitalisation talks announcement, the company has provided an update on current trading which showed tour bookings down 9% and airline bookings down 3%.