esprits-outgoing-chairman-sells-about-755-million-of-stock

Esprit's outgoing chairman sells about $755 million of stock

Investors are happy to buy despite a tight discount to the company's record high share price. Deal to wrap up Friday morning.
Michael Ying, the chairman of Esprit Holdings, last night put about half of his remaining stake in the company up for sale through an aggressively priced placement that was due to wrap up just before the start of trading today.

There has been widespread speculation that Ying would sell some of his shares after he announced a week ago that he is stepping down as chairman at the end of this year to become a non-executive director.

Supported by record earnings published on the same day, the share price has held up well despite the placement talk. It hit a record close of HK$72 yesterday. This was the sixth placement by Ying since May 2003 - and apart from some short-term downside immediately afterward the placements, the share price has managed to continue edging higher.

According to a source, the $755 million to $771 million deal comprised 85 million shares, or about 7% of the company. They were offered to investors at a tight discount range of 2.1% to 4.2% over ThursdayÆs close or at a price of HK$69 to HK$70.50.

With such an aggressive target price it was no surprise that the majority of orders came at the low end of the range and sources said late last night that the deal was likely to price between HK$69 and HK$69.50

Unusually for a Hong Kong block trade, the order book was to stay open until 8am this morning (September 22), but according to sources this was not because of a lack of demand. Rather, joint bookrunners Citigroup and Morgan Stanley were said to have wanted to allow the participation of some Asian accounts that would otherwise have missed out because of the late (after 6.30 pm on Thursday) launch.

One source says the book was ôwell coveredö at the bottom of the price range and ôcoveredö at HK$69.50 with more than 100 investors having signed up. A large part of the orders came from US and global accounts, a substantial number of which already own stock in the fashion retailer.

That demand would have surprised rival bankers who said earlier in the evening that they felt the price was too aggressive for such a large a size û especially since the stock is already trading at record highs.

The most recent placement by Ying in March 2005 was priced at a 4.4% discount to the market, even though the size, at $552 million, was smaller than yesterday's transaction. The sale before that in November 2004 was priced at a 6% discount to the market.

This is also the largest Hong Kong placement since Citigroup helped Sung Hung Kai Properties raise $1.01 billion on the eve of the global stock market correction in early May.

Indeed, the price may have been pushed up as a large number of banks have been fighting for the mandate to do this deal since Ying announced his intention to hand over the helm of the company he founded more than 30 years ago. Five banks were said to have been invited to bid for the transaction.

However, one observer notes that the market keeps absorbing these sell-downs without too much trouble and view them almost as a liquidity event.

ôIf you have an opportunity to buy another $100 million worth of stock at a 4% discount in a name you already own and like, then why not go for it,ö he says.

The record share price would be one reason to be a bit cautious about the future upside, but as an added incentive, investors who buy shares in the placement will have a right to participate in the final dividend of HK$0.73 per share and the HK$1.08 per share special dividend that was declared at the time of the earnings.

The company reported a 16.4% rise in net profit to HK$3.74 billion in the year to June, which was in line with analyst forecasts. Germany, which contributed close to 50% of the revenues, will remain the top growth driver in the coming year, the company says.

Helped by a 9.8% rally since the earnings release, EspritÆs share price has risen 30.7% this year.

Ying will still hold about 8.7% of the company after this transaction and has agreed to a 90-day lockup.
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