Thomas Cook’s Biggest Backer Sells Happiness. Really.
(Bloomberg Opinion) -- How do you sell happiness?
Fosun International Ltd., the largest shareholder of now-defunct Thomas Cook Group Plc, apparently does just that. In the first half of 2019, this Chinese conglomerate generated 31 billion yuan ($4.36 billion) in sales and 1.8 billion yuan in profit from its “Happiness” business, which consists of tourism, fashion and consumer lifestyle. The existential mumbo jumbo doesn’t end there. Fosun also counts Wealth and Health among its major business units.
Fosun has been a busy buyer over the last five years, with $18 billion of deals at home and abroad, according to data compiled by Bloomberg. Under the Happiness umbrella alone, there was luxury resort Club Med SAS, which Fosun bought in 2014 for $1.3 billion; an 18% stake in Tsingtao Brewery Co.; French fashion house Jeanne Lanvin SAS; and German clothing retailer Tom Tailor Holding SE.
But the collapse of Thomas Cook, a 178-year-old British travel agency, has raised questions about whether the private-equity-style investment house is able to provide any value to its portfolio companies – and if so, how to assess it. It’s almost impossible for investors to calculate Fosun’s return on capital at the brand level, or discern which part of its acquisition strategy is actually working.
When it comes to valuing financial conglomerates, investors tend to rely on a sum-of-the-parts analysis. If they can't figure out what each part is worth, they’ll start to assign a deep conglomerate discount. Over the years, Fosun’s value by this measure has depreciated, and the company now trades at a 30% discount to book. In the long term, the company’s opaque structure will only derail its ambitions as an investment powerhouse.
By comparison, the financials of SoftBank Group Corp., another acquisitive conglomerate, are a lot easier to parse (and that’s saying something). Investors can go straight to the company’s website to see the market capitalization of major listed stocks the company holds. Its major acquisitions, such as Sprint Corp., ARM Holdings Inc., and the many startup shares it has bought via the $100 billion Vision Fund, are displayed as separate business segments in its income statement.
There is one thing Fosun is good at: recycling its investments. In its 2018 upgrade report, Moody’s noted that Fosun completed 26.8 billion yuan of new deals and disposed of 27.2 billion yuan of assets the year before. And the spin continues. Despite Hong Kong's political turmoil, the company has managed to raise $410 million from its listing of Shanghai Henlius Biotech Inc. In December, the firm listed Fosun Tourism Group, which held the company’s equity stake in Thomas Cook.
But neither a fast metabolism nor a busy recycling schedule can make investors fall in love – or mask a private-equity wannabe that can’t offer a clearer picture of its return on capital. Perhaps a corporate restructuring would be a more concrete fix than attaining happiness.
-Nisha Gopalan contributed to this column.
To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
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