Transfer Pricing Associates

The Tangible Benefits of Intangibles

post Tuesday May 29, 2012

Thomas Cook belga

When companies face financial difficulties, what are their options? One would say issue shares, or take out more loans. If that does not suffice perhaps some of  the property or assets can be sold. However, what if the company in question has a strong brand presence? This would mean that there is great value tied up in the company’s intangible assets which often companies in distress tend to forget to exploit.

This is the case with famous vacation planning company Thomas Cook. After having to ask its lenders to bail them out, for the second time in the span of a month, concerns for Thomas Cook’s future remains strong. Their debt to operating profit ratio, is 3, not including pension liabilities. In order to make more cash available to them, they announced the liquidation of about $200 million worth of assets in the form of property and plant.

However, their pension liabilities are quite high. There must surely be a way to free the tied up value in their intangible assets... and indeed there is. One possible solution could be to make use of non-cash asset pension funding. They could separate strong brand names to create a pension funding partnership and transfer these assets into special purpose vehicles which can then be leased back to Thomas Cook. As such, they would be able to decrease their pension deficit and give their lenders more security. This plan could work out, because intangibles can, without difficulty, be separated from the company and are not used as collateral in loans.

An example of a company that successfully implemented such a scheme is that of TUI travel, a rival of Thomas Cook. After implementation, they announced a $85 million profit in 2011 from a loss of $123 million the year before, which was largely contributed by the new plan.

From the evidence above, it is most certainly worth a shot for Thomas Cook, after all, they have a lot to lose otherwise.



Image courtesy of Thomas Cook belga

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