Hong Kong’s Fung family and Singapore’s GLP Group have made a HK$7.2 billion (US$928 million) offer to privatise 114-year-old global merchandise supply chain manager Li & Fung at a price premium of 150 per cent, as they seek to take advantage of the worst economic and stock market downturn in a decade caused by the coronavirus pandemic.
Golden Lincoln, controlled by Victor Fung Kwok-king and William Fung Kwok-lun, has teamed up with GLP, a global operator and investor in logistics, real estate, infrastructure and finance, for the privatisation. GLP will buy all the 5.78 billion shares not owned by the Fung family at HK$1.25 each. The family will not be buying any more Li & Fung shares.
“In light of global economic uncertainties, the company’s transformation will involve execution risk and the associated benefits will require a longer time to materialise,” chief executive Spencer Fung, who is also Victor Fung’s son, said in a filing to the Hong Kong stock exchange after market close on Friday. “The offerers believes that the transformation of the company will be more effectively implemented away from the public equity markets.”
This is because the privatised company will no longer be under pressure from independent shareholders to pursue short-term goals, which might not be in line with its long-term restructuring plan, which will also need additional funding to be realised, a source close to the deal told the South China Morning Post.
Spencer Fung said the Li & Fung board had established an independent committee to make a recommendation to independent shareholders on the offer.
After the privatisation, the Fung family will retain management control of Li & Fung by owning 60 per cent of the voting shares, said Ed Lam, Li & Fung’s chief financial officer. GLP will own 40 per cent of the voting shares and 100 per cent of the non-voting shares, resulting in an “effective economic ownership” of 67.67 per cent.
The offerers will not increase the offer price and do not reserve the right to do so, Li & Fung said, adding that they will not require Li & Fung to borrow money to help them fund the privatisation.
The offer comes after Li & Fung unveiled a US$17 million net profit for last year, a turnaround from a loss of US$13 million in 2018.
Its revenue fell 10.1 per cent from 2018 to US$11.4 billion, due to continued destocking by customers, store closures and customer bankruptcies. Its core operating profit declined 22.9 per cent to US$228 million.
The US-China trade war saw China sourcing fall to 43 per cent of its total procurement from 50 per cent, as buyers shifted their purchases to other countries in Asia to avoid tariffs. The trade war also spooked investors, as it disrupted the Asian supply chains of many US retailers.
Li & Fung’s share price closed at 50 HK cents on Friday, at a fraction of a peak of about HK$25.5 in early 2011. It has been hurt by the proliferation of e-commerce, which has seen many of the West’s biggest retailers close physical stores, reduce inventories and shorten product delivery lead times to reduce costs.
The trading company, which epitomises Hong Kong’s role as the bridge between China's factories and the world, is the biggest supplier of consumer products globally. It helps many retail brands source products from thousands of manufacturers in Asia and manages production and logistics processes.
GLP operates and manages 62 million square metres of global logistics assets – mostly in China, Brazil, India and Japan – and more than US$89 billion in assets. Its shareholders include GLP’s chief executive, Ming Mei, HOPU Logistics Investment Management, Vanke Real Estate (Hong Kong), Bank of China Group Investment and Hillhouse Capital Logistics Management.
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