A consortium of the Fung family, which founded the business and Singaporean warehousing and logistics firm GLP, proposed to buy out Li & Fung’s controlling shareholders for HK$1.25 per share.

WHO: Li & Fung was founded in 1906 trading handicrafts from China to the West. Listed in 1973, the 114-year-old company has grown into a giant in global merchandise and supply chain solutions encompassing 17,000 people in 40 different markets.

GLP operates and manages 62 million square meters of global logistics assets—mostly in China, Brazil, India, and Japan—and more than US$89 billion in assets. Its shareholders include GLP’s chief executive Ming Mei, HOPU Logistics Investment Management, Vanke Real Estate (Hong Kong), Bank of China Group Investment, and Hillhouse Capital Logistics Management.

WHY: As a privatized company it will no longer be under pressure from independent shareholders to pursue short-term goals that might not be in line with its long-term restructuring plan, which will also need additional funding to be realized, a source told the South China Morning Post.

IN THEIR OWN WORDS: Spencer Fung, Group CEO of Li & Fung, said: “While our financials were affected by strong headwinds in the retail sector and global markets, we achieved important gains in our goal of creating the Supply Chain of the Future in our recently completed three-year plan. We are successfully transforming from a traditional, analog agent into a unique digital supply chain service provider. We now have a leadership position in 3D digital product development and are delivering a suite of value-added services to our customers.”

Commenting on how the Covid-19 outbreak is affecting global supply chains, Spencer Fung said, “We are working around-the-clock with our customers and suppliers during this period of deep uncertainty. Our teams on the ground across the world are actively supporting customers, just as we did during the US-China trade war to help address the disruptions to their business.”

“In light of global economic uncertainties, the company’s transformation will involve execution risk and the associated benefits will require a longer time to materialize,” Fung, who is also Group Chairman Victor Fung’s son, said in a filing to the Hong Kong stock exchange after market close on Friday. “The offerers believes that the transformation of the company will be more effectively implemented away from the public equity markets.”

DETAILS:

• Golden Lincoln, controlled by Victor Fung Kwok-king and William Fung Kwok-lun, teamed with GLP for the privatization.
• GLP will buy all the 5.78 billion shares not owned by the Fung family at HK$1.25 each. The family will not be buying any more Li & Fung shares.
• According to Reuters, the price is about 72.7% over the company’s average closing price in the last 60 days and more than double its Friday close of HK$0.50 apiece.
• After the privatization, the Fung family will own 60% of voting shares and will retain management control of Li & Fung, said Ed Lam, Li & Fung’s chief financial officer.
• GLP will own 40% of the voting shares and 100% of the non-voting shares, resulting in an “effective economic ownership” of 67.67%.
• The offer comes after a US$17 million net profit for last year, a turnaround from a loss of US$13 million in 2018.
• Revenue fell 10.1% from 2018 to US$11.4 billion, due to continued destocking by customers, store closures, and customer bankruptcies.
• Core operating profit declined by 22.9% to US$228 million.
• In 2014, it spun its consumer brands management division into a separately listed entity, Global Brands Group.
• In 2017, it privatized its sweaters, beauty, and furniture product verticals in a sale to the Fung Group and Hony Capital.