CDH makes another partial exit from WH Group

The company said in a filing that CDH sold 883.5 million shares for HK$6.55 apiece, a 5.9% discount to the May 19 closing price. WH’s stock was trading at HK$6.85, down 1.58%, as of early trading on May 22. The private equity firm’s holding – which comprises shares held by four funds and by co-investors – could fall to 2.71%, if it acts on the right to distribute a further 78.7 million shares.

WH went public in August 2014, raising HK$15.3 billion, but CDH did not sell any shares in the offering and held a 30.39% stake after the overallotment option was fully exercised. After a failed attempt to return capital to LPs ahead of the lock-up period ending through a share pledge, the GP sold HK$9.25 billion worth of shares in August 2016, reducing its interest to 19.77% and then HK$6.25 billion in October 2016, leaving it with 12.94%.

CDH first invested in WH - then known as Shuanghui, which is the main brand the company operates under in China - in 2007. Over time it committed around $1 billion from its funds and through co-investment. According to sources familiar with the situation, the private equity firm is on course for a 3.5x return from the entire investment. WH also won backing from the likes of Goldman Sachs, New Horizon Capital and Temasek Holdings.

During the holding period, WH has evolved from a state-owned meat processor into the world's largest pork company, with a presence across key segments of the industry value chain, including hog production, fresh pork and packaged meats. Most of its businesses are under A-share listed Henan Shuanghui Investment and Development, in which WH holds a 73% stake.

In 2013, the company acquired Smithfield Foods, the leading pork producer in the US and the world's largest pork exporter, for $7.1 billion including debt. Since the merger, WH has been streamlined from numerous individually-run units into four core business groups. Integration efforts include boosting exports of pork from the US to China and introducing Smithfield's equipment, technology and branding expertise to produce American-style packaged meats for sale in China.

Speaking to AVCJ last November, Shangzhi Wu, chairman of CDH, noted that the goal is always to back companies that will grow to the size of WH, but investors have to make judgment calls on when is the right time to exit. “With WH Group, it was always the largest pork producer in China. Then the Chinese pork market grew to five times that of the US, so the company became global in size and also developed global ambitions, which led to the acquisition of Smithfield Foods. We didn't foresee that on day one,” he added.

WH's sales reached $21.5 billion in 2016, up from $21.2 billion the previous year. Just over half of this came from packaged meats, with fresh pork and hog production contributing 42.6% and 2.1%, respectively. The US accounted for 57.4% of turnover with China responsible for 36%. Net profit came to $1.24 billion in 2016, up from $995 million the previous year.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Open market
• Consumer
• Industrials
• China
• CDH Investments Management
• Exit