GLP backs $1.37b take-private of Hong Kong's Li & Fung
The founders of Hong Kong-listed Li & Fung have teamed up with PE-owned warehouse operator GLP on a take-private offer that values their company at HK$10.7 billion ($1.37 billion).
The consortium will pay HK$1.25 per share in cash for all outstanding shares, according to a filing. The founder group – owned by brothers William and Victor Fung and their family trust – currently holds 33.2% of the company. This would be rolled over into the acquisition vehicle, but the founder group would retain a 60% voting power through a dual-class share structure. GLP China Holdings, a subsidiary of GLP, would have a 67.67% economic interest and a 40% voting interest.
The offer represents a 150% premium to the March 20 closing price of HK$0.50. Li & Fung, which built its business on sourcing and supply chain management for multinational customers, was trading above HK$19.00 in 2012, but its share price has declined steadily in recent years. Since May 2018, the stock has slumped 88% as the company struggled with destocking, store closures and bankruptcies among retailers globally but especially in the US. Now the coronavirus outbreak has thrust supply chains around the world into uncertainty.
Li & Fung said the proposed transaction would facilitate a necessary transformation of the business. It noted that, despite a strategic repositioning intended to offset digital disruption to retail, financial performance has remained under pressure and this is likely to increase given the ongoing economic headwinds. The company wants more time to restructure and invest in new technology and infrastructure – and it believes partnering with GLP can be helpful in this respect.
GLP holds 66.2% of GLP China Holdings; the other owners are not disclosed. However, a consortium including Hopu Investments, Boyu Capital and several Chinese state-owned investors did end up with nearly one-third of the company's China subsidiary in 2014 - as well as a small stake in GLP itself - after committing $2.5 billion. GLP is now controlled by Hopu, Hillhouse Capital, Bank of China, property developer China Vanke and CEO Ming Mei following an $11.5 billion privatization in 2017.
GLP has a global portfolio of around 62 million square meters – including properties under operation and in development – of which China is the largest constituent part. It delivers warehousing and logistics services to manufacturers, online and offline retailers, and third-party logistics providers. GLP has $89 billion in assets under management in real estate and private equity funds that are either created to hold properties spun out from the balance sheet or raised for direct investment.
Li & Fung was founded in Guangzhou in 1906 and established a Hong Kong presence in 1937. The company has narrowed its business in recent years to focus on supply chain solutions, logistics, and onshore wholesale services. In 2017, the furniture, beauty, and apparel verticals were divested in a $1.1 billion deal involving Hony Capital and two Fung family-controlled entities. Last year, Temasek Holdings invested $300 million in the logistics unit after plans for an IPO spinout were abandoned.
It was thought that a slimmed-down Li & Fung would be better able to meet the needs of a global economy that prioritizes speed to market, mobile-enabled and mass-customized products and services, and digitization. The company wants to build the “supply chain of the future,” leveraging its existing network, an end-to-end digital platform currently under construction, and emerging capabilities in areas like 3D printing.
Turnover came to $11.4 billion in 2019, down from $12.7 billion the previous year, while net profit rose from $29 million to $54 million. Financial performance has been deteriorating since 2013, when Li & Fung generated turnover and net profit of $20.7 billion and $755 million, respectively. Supply chain solutions accounted for $8.8 billion of revenue in 2019 – and the US contributed 78% of that – with $1.17 billion from logistics and $1.44 billion from wholesale.
On COVID-19, Li & Fung is “working around the clock with customers and suppliers this period of deep uncertainty,” according to Spencer Fung, group CEO. The company stressed that it has $932 million in cash balance and over $1.5 billion in banking facilities.
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