The family that founded the world's largest supplier of consumer goods, Li & Fung, is trying to take the company private in a HK$7.22 billion (S$1.4 billion) deal amid the double whammy of the US-China trade war and the widening coronavirus pandemic.
A consortium of the Fung family, which started the trading business over a century ago, and Singapore-based GLP, a logistics warehouse operator and investor, has offered HK$1.25 per share in the privatisation deal, said a statement last Friday. That represents a premium of about 150 per cent to the stock's last closing price.
The company will require a longer period to carry out deeper restructuring and such a transformation will be more effectively implemented away from the public equity markets, it said in the statement.
The privatisation offer is structured such that the Fung family sees no change to its 32.3 per cent share of Li & Fung. It is GLP, which operates and manages 62 million sq m of logistics property globally, that will take over the rest of the stock, now held by public investors including Vanguard Group and Norges Bank.
Li & Fung, which designs, sources and transports consumer goods from Asia for some of the world's biggest retailers, including Walmart and Nike, has seen its fortunes fall precipitously in the past five years.
The Hong Kong-based company, which listed in 1973, grew into a behemoth along with China's rise as the factory to the world. But profit has been falling as the rise of e-commerce platforms such as Alibaba and Amazon cut out the middleman, and its Western retail clients met waves of store closures.
Last Friday, it reported a full-year revenue drop of 10.1 per cent to US$11.4 billion (S$16.5 billion), missing the lowest analyst estimate. Core operating profit fell by 22.9 per cent to US$228 million.
While chief executive Spencer Fung, whose great-grandfather Fung Pak-Liu established the company in 1906, has been trying to restructure the company by streamlining operations, diversifying its sourcing to other countries besides China and making use of technology such as 3D apparel design, a turnaround has not materialised. Li & Fung's shares have fallen 64 per cent in the past year.
The US-China trade war and the global coronavirus pandemic have added to the company's woes.
"As the outbreak expands into North America and Europe, it may further affect retail sentiment, which is already being battered by economic weakness," said Mr Fung in a media briefing last Friday. "At this juncture, we believe the impact will be felt throughout the year."
He declined to comment on the privatisation proposal, which will have to be passed by shareholders. A date for a shareholder vote has not been announced.