Century-Old Li & Fung Wants to Go Private as Blows Keep Coming

(Bloomberg) -- After struggling to turn its century-old business around by itself over the last few years, the world’s biggest supplier of consumer goods realized it couldn’t survive the headwinds on its own.

In the second half of last year, Li & Fung Ltd., which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart Inc. and Nike Inc., began exploring options for its future, said people familiar with the matter.

Battered by the rise of e-commerce and waves of closures among its retail store clients, the Hong Kong-based company already saw a 74% decline in core operating income since 2013. Then came the U.S-China trade war, which chilled relations between the two economic giants it had made its business as a middleman for.

While publicly touting a restructuring plan that would digitalize its operations and diversify its sourcing away from China, the company was privately approaching potential partners on options that included joint ventures and tie-ups, said the people, who were not authorized to speak publicly.

Even as discreet discussions were ongoing, the challenges kept coming: anti-China street protests brought its home base of Hong Kong to a near-standstill, while worrying reports of an unknown pneumonia -- the virus that would become a global pandemic that’s now sickened over 300,000 people -- emerged out of China in December.

By mid-January, a partner and a plan were found: private equity-backed logistics operator and investor GLP Pte Ltd would provide the funding for the founding Fung family to take its business private.

On Friday, as the world was pre-occupied with news of the growing pandemic that’s killed more than 10,000 people and shut down much of the world economy, Li & Fung tabled a HK$7.22 billion ($930 million) privatization deal to shareholders.

The Fung family and GLP would offer shareholders HK$1.25 per share, representing a premium of about 150% to the stock’s closing price on Friday. While shareholders still have to approve the proposal and a date has not been set for the vote, investors have reacted positively: its stock surged 110% on Monday, the most on record.

Its stock price had previously slumped 98% since late 2010.

Plane Losing Altitude

GLP itself was also taken private in 2017 after a seven-year listing on Singapore stock exchange. It’s now owned by a consortium that includes its founder Ming Mei, private equity firms Hillhouse Capital Management and Hopu Investment Management and manages assets of $89 billion, mostly in logistics warehouses and other property.

“The GLP consortium, comprising of entities from real estate, private equity and banking sectors, could bring additional financial and business resources to Li & Fung’s logistics business,” said Bloomberg Intelligence retail analyst Catherine Lim. “GLP could sell an enlarged Li & Fung’s logistics unit to major operators in the business.”

Li & Fung’s logistics business is attractive to GLP as it’s complementary to the investor’s core operations. Tech-savvy GLP can also help upgrade Li & Fung’s supply chain business, people familiar with the privatization deal said.

The Fung family will remain in control of the business with 60% of voting shares and a 32% actual stake. They will have preemptive rights -- the right to buy over GLP’s stake before anyone else -- if the investor decides to exit, according to the people.

It’s not the first time the company, which was established in 1906, is using the go-private strategy to ride out a rough time. It was first listed in 1973 and went private in 1980s due to a weak financial performance and family issues. It re-listed in 1992.

Chief Executive Officer Spencer Fung, whose great-grandfather Fung Pak-Liu started the company, told Bloomberg in an interview last July that running the company was like “flying a plane that’s losing altitude.”

Then, he struck an optimistic note that the company’s restructuring efforts were bearing fruit. “The altitude loss is reducing and we’re actually pulling that plane back up,” he said.

With the global economy on the precipice of a historic contraction due to the coronavirus pandemic, Li & Fung is now placing its faith in a co-pilot -- and disappearing from the public radar.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.