GLP Backs HK$7.2B Buyout of Hong Kong’s Li & Fung

Asia’s largest logistics developer and fund manager is branching out into consumer goods distribution, according to an announcement late Friday by Hong Kong-listed Li & Fung Ltd.

GLP, which has $89 billion in assets under management globally, has teamed up with the Fung family, which controls the consumer products sourcing and distribution firm, to make a HK$7.2 billion ($931 million) offer to privatise the 114-year-old trading house, according to the announcement.

The offer of HK$1.25 per share for Li & Fung values the company at just under HK$11 billion and represents a premium of over 95.2 percent over the average closing price for Li & Fung’s shares over the 30 days which ended on 20 March. The company’s shares closed on Friday at HK$0.50 per share.

Trading Firm Shares Declined 45% in Six Months

The privatisation offer from Golden Lincoln, a private firm controlled by Li & Fung chairman Victor Fung and his brother William Fung, together with GLP, was announced on the same day that the listed company revealed $17 million in net profit for 2019, after posting a loss of $13 million a year earlier.

The company, which provides sourcing services for brands including Calvin Klein and Tommy Hilfiger, achieved those results despite a more than 10 percent drop in revenue to $11.4 billion and as its core operating profit slide by just under 23 percent to $228 million.

Despite the company’s upswing in net profit, its stock has slid from HK$0.91 per share six months ago to its current HK$0.50, a slide which pared more than 45 percent from Li & Fung’s value.

Buying Time to Restructure

In the company’s statement to the stock exchange, CEO Spencer Fung explained the buyout as providing the company with a wider window to achieve a restructuring necessitated by pressure from e-commerce and online shopping, as well as by a more challenging economic environment.

“Although the Company has implemented a number of strategic changes to adapt to shifting market dynamics, the Company’s financial performance has remained under pressure,” Fung said. “In addition, economic headwinds, which are expected to continue, are having a significant adverse impact on the Company’s business activities.”

The company’s chief executive, who is also the son of Victor Fung, portrayed the offer as a sign of the family’s faith in the long term prospects of the consumer products sourcing firm. The board has appointed an independent committee to make a recommendation regarding the offer to shareholders.

Keeping Control in the Family

The terms of the offer involve the Fung family, which will not be acquiring new shares as part of the arrangement, retaining ownership of 60 percent of the voting shares in the company.

GLP would be acquiring the remaining 40 percent of the stock which carries voting rights, while also winning ownership of 100 percent of the non-voting shares, which would give the warehouse giant the rights to just less than 68 percent of the economic proceeds of the company.

The buyout offer was announced just over one week after GLP, which is controlled by CEO Ming Mei, together with a consortium of primarily mainland China investors, confirmed that its Gazeley unit had agreed to buy a portfolio of European warehouses from Australia’s Goodman Group for €1 billion ($1.1 billion).

In addition to its logistics real estate development and fund management business, GLP in 2018 established the Hidden Hill Modern Logistics Private Equity Fund, which the company describes as investing in the logistics ecosystem beyond real estate, “with a focus on companies using technology to enhance efficiency in the logistics industry.”