Shareholders approve $6.8b PE buyout of Belle International

The company said in a filing that a majority of shareholders voted in favor of the proposal. This followed recommendations from independent proxy advisors Glass Lewis and Institutional Shareholder Services (ISS) that shareholders support the bid of HK$6.30 per share – a 19.5% premium to the April 13 closing price.

AVCJ understands that CDH has reached out to LPs that might be interested in participating in the transaction as co-investors. The deal requires about HK$17.3 billion ($2.2 billion) in fresh equity, almost all of which will come from the two GPs. CDH’s contribution alone will likely exceed $400 million; more than the firm would ordinarily commit to a single deal from its $2.55 billion fifth fund. Several LPs said they expected Hillhouse to consider co-investment options as well.

This would be the third-largest PE-backed privatization of an Asia-based company, following the S$15.9 billion ($11.5 billion) purchase of Singapore-listed Global Logistic Properties (GLP) – which was announced last week – and last year’s $9.3 billion privatization of US-listed Qihoo 360. However, the GLP deal will see an existing investor roll over a substantial holding, while the Qihoo privatization was backed by a 36-strong consortium.

Under the original proposal, Hillhouse would control 56.81% of the company, with CDH owning 12.06% and management – including two executive directors at Belle, Wu Yu and Fang Sheng, who are named as members of the PE consortium – holding the balance. Bank of America has agreed to provide HK$28 billion in financing for the deal.

The transaction is also notable among China take-privates in that the existing leadership is not participating. Yiu Tang, Belle’s founder and chairman, and Baijiao Sheng, the CEO, voted in favor of the proposal and will fully exit their combined 25.75% stake in the company. Baijiao Sheng said in a statement issued when the offer was announced that the prospective buyers had the resources and expertise to take Belle into the digital age.

Belle’s business is divided into two segments – footwear and sportswear and apparel, with a combination of in house brands and international brands – and both have struggled as the growth of e-commerce in China has reduced foot traffic in shopping malls. The company manages 20,716 retail outlets in mainland China, as well as more than 100 in Hong Kong and Macau, and it has posted 13 consecutive quarters of negative same store sales growth.

Belle generated revenue of RMB40.8 billion ($5.9 billion) for the 12 months ended February 2016, up from RMB40 billion the previous year. However, net profit plummeted from RMB4.76 billion to RMB2.93 billion. Footwear, which accounts for 51.7% of overall revenue, was hit hardest as same store sales declined more than 10% and gross profit margin fell by one percentage point.

This will be the second time CDH has invested in Belle. In 2005, it teamed up with Morgan Stanley Private Equity Asia to pay $40 million for a 10.7% stake. When the company listed in Hong Kong in 2007, raising $1.1 billion, CDH bought another $10 million worth of shares as part of the offering. Over the ensuing years, the GP gradually sold down its holding.

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• Topics
• Greater China
• Consumer
• Buyouts
• China
• CDH Investments Management
• Hillhouse Capital Management