Shares in cash-strapped travel firm Thomas Cook have plunged more than 40 per cent after it confirmed talks with its largest shareholder over a deal which would effectively hand over control of the company.

The firm said it is in advanced discussions with Chinese conglomerate Fosun over a £750 million cash injection, paving the way for a sale of its tour operator business.

Fosun and Thomas Cook's core lenders are considering proposals which would give the Chinese company a controlling stake in the group's tour business and a significant minority interest in its airline.

Shares dropped more than 44 per cent in early trading following news of the proposals, which would drastically dilute existing shareholders.

It follows recent reports that Fosun was eyeing up a deal which could lead to the complete break-up of the British travel firm, which is the world's oldest package holiday company.

Existing shareholders will be significantly diluted as a result of the plans, although they will be offered the option to invest as part of the recapitalisation.

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.

Thomas Cook has been grappling with a decline in bookings and uncertainty surrounding Brexit, which it said contributed to the £1.5 billion 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 axing 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 Friday's recapitalisation talks announcement, the company provided an update on current trading which showed tour bookings down nine per cent and airline bookings down three per cent.

Underlying earnings for the second half are expected to be below last year's performance.