Li & Fung received an offer worth HK$7.22 billion for its privatisation deal

24 Mar, 2020 23:32
source: Singularity Financial

Singularity Financial Hong Kong March 24, 2020 – GLP, Asia’s largest logistics developer and fund manager, has teamed up with the Fung family, which controls the consumer products sourcing and distribution firm, to make a HK$7.2 billion ($931 million) offer to privatise the 114-year-old trading house, according to the announcement.

Li & Fung, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers, including Walmart and Nike, has seen its fortunes fall precipitously. Last Friday, it reported a full-year revenue drop of 10.1 per cent to US$11.4 billion (S$16.5 billion), missing the lowest analyst estimate. Core operating profit fell by 22.9 per cent to US$228 million. As of March 20, Li & Fung’s market value was only HK$4.3 billion, a decline of more than 97% in nine years.

A consortium of the Fung family, which started the trading business over a century ago, and Singapore-based GLP, which has $89 billion in assets under management globally, has offered HK$1.25 per share in the privatisation deal, which values the company at just under HK$11 billion and represents a premium of about 150 per cent to the stock’s last closing price.

The privatisation offer is structured such that the Fung family sees no change to its 32.3 per cent share of Li & Fung. GLP would be acquiring the remaining 40 percent of the stock which carries voting rights, while also winning ownership of 100 percent of the non-voting shares, which would give the warehouse giant the rights to just less than 68 percent of the economic proceeds of the company.

In the company’s statement to the stock exchange, CEO Spencer Fung explained the buyout as providing the company with a wider window to achieve a restructuring necessitated by pressure from e-commerce and online shopping, as well as by a more challenging economic environment.

“Although the Company has implemented a number of strategic changes to adapt to shifting market dynamics, the Company’s financial performance has remained under pressure,” Fung said. “In addition, economic headwinds, which are expected to continue, are having a significant adverse impact on the Company’s business activities.”

The company’s chief executive, who is also the son of Victor Fung, portrayed the offer as a sign of the family’s faith in the long term prospects of the consumer products sourcing firm. The board has appointed an independent committee to make a recommendation regarding the offer to shareholders.

“You’ll probably see other companies looking at [going private], if their founders have got the capital available or the company is cash-rich,” said David Webb, a Hong Kong activist investor and corporate governance expert. “When you have sharp moves in markets sometimes people see opportunities to make a move they might have been considering for some time.”