The family that founded the world’s largest supplier of consumer goods, Li & Fung Ltd, is trying to take the company private in an HK$7.22 billion ($930 million) deal amid the double whammy of the U.S.-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 Pte Ltd., a logistics warehouse operator and investor, has offered HK$1.25 per share in the privatization deal, said a statement on Friday. That represents a premium of about 150% 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 privatization offer is structured such that the Fung family sees no change to its 32.3% share of Li & Fung. It is GLP, which operates and manages 62 million square meters of logistics property globally, which 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 last 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 like Alibaba and Amazon cut out the middleman, and its Western retail clients met waves of store closures.
On Friday, it reported a full year revenue drop of 10.1% to $11.4 billion, missing the lowest analyst estimate. Core operating profit fell by 22.9% to $228 million.
While Chief Executive Officer 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 make use of technology like 3D apparel design, a turnaround has not materialized. Li & Fung’s shares have fallen 64% in the past year.
The U.S.-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 Fung in a media briefing on Friday. “At this juncture, we believe the impact will be felt throughout the year.”
He declined to comment on the privatization proposal, which will have to be passed by shareholders. A date for shareholder vote has not been announced.