Li Ning founder sells 25% in TPG-backed sportswear retailer
Chinese former Olympic gymnast Li Ning has agreed to sell a 25% stake in the sportswear company that bears his name – and counts TPG Capital among its investors – to Viva China, a Hong Kong-listed talent management agency. A company wholly owned by Li and his brother has a majority interest in Viva China.
According to a regulatory filing, two holding companies controlled by the Li family will between them sell 266.4 million shares in Li Ning to Viva China at HK$5.10 apiece, a 5.6% premium to the previous close. Li Ning shares have since fallen more than 6% to HK$4.45.
The transaction means the Li family's overall stake in the company would be diluted 17.6% from 25%, Bank of America Merrill Lynch said.
Viva said the purchase was intended to increase its exposure to China's sports sector, adding that the two companies could explore strategic development opportunities in sports advertising and sponsorship. It will finance the investment by issuing new shares after a five-for-one share consolidation.
Li Ning, which operates around 7,300 outlets across China, has struggled in recent years after a failed attempt to reposition the brand and challenge the likes of Nike and Adidas. The company has since lost market share to local rivals in second- and third-tier markets as well as trailing Nike and Adidas in top-tier locations.
In February, Li Ning sold RMB750 million ($119 million) in convertible bonds to TPG and Government of Singapore Investment Corporation (GIC). If fully converted, TPG would own 12% of the company, while GIC's holding rose to 8%, up from 6% prior to the deal.
Li Ning subsequently announced that 2011 profit had fallen 65.2% year-on-year to RMB386 million, blaming higher marketing costs and an impairment loss on a brand licensing business. It predicts a "substantial decline" in profit for 2012.
Jin-goon Kim, a TPG executive who previously turned around Chinese women's shoe retailer Daphne, was appointed executive vice chairman of Li Ning in July. The move came as CEO Zhiyong Zhang stepped down and was replaced by founder Li on an interim basis. Last week CFO Yik-Kay Chong also left the company.
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