Peak Sport Products looks set to become the second company to delist its shares from Hong Kong in less than two months after the Chinese sportswear manufacturer's founder and chairman made a HK$2.4 billion ($310 million) offer to take the company private.
The management buyout offer announced on Tuesday comes two months after news broke that Xu Jingnan, who founded Peak Sport in 1989 and took the company public twenty years later, was in preliminary talks for a take-private. Peak Sport's share price has risen by 22% since then.
Peak Sport's take-private attempt follows that of property-to-entertainment conglomerate Dalian Wanda Group, which officially launched a buyout offer for its Hong Kong-listed subsidiary Dalian Wanda Commercial Properties in May.
Both companies are widely expected to delist from Hong Kong in favour of a domestic listing in China, where they can achieve a much higher valuation judging by current trading levels.
Rival sportswear manufacturer Guirenniao, for example, trades at 49 times historical earnings and 45 times forward earnings based on its Tuesday closing price on the Shanghai stock exchange. That is more than four times the market valuation of Peak Sport's Hong Kong-listed shares, which closed at HK$2.41 on Tuesday, valuing the company at 11.5 times historical earnings and 11 times on a forward basis.
Should it decide to return for an A-share listing, Peak Sport could command an even higher valuation than Guirenniao due to its international presence.
Peak Sport is one of the few Chinese sportswear brands so far to have expanded into foreign markets. It is currently the sponsor of a number of high-profile athletes including NBA stars Dwight Howard and Tony Parker, as well as tennis player Olga Govortsova and Galina Voskoboeva.
Peak Sport and Dalian Wanda share some common characteristics that could perhaps explain their intention to delist from Hong Kong and relist on the Chinese mainland.
Both companies have a limited presence in Hong Kong, which makes listing their shares in the city inessential from a business point of view.
Peak Sport operated 5,999 retail outlets in China as of the end of last year, according to the company's annual report, but none of them are in Hong Kong. Similarly, Dalian Wanda owns all its properties in China.
So one argument is that a mainland Chinese listing will be beneficial to both companies because local investors are more familiar with the brands and business models.
The two companies' listings in Hong Kong appear to have been driven in part by marketing reasons and formed part of their business plans to expand outside of China. Peak Sport was largely a domestic brand until it made itself known to international investors during its initial public offering in 2009, while Dalian Wanda has aggressively bought foreign assets since listing its property unit.
But a Hong Kong listing platform appears to be unimportant for both companies from a funding point of view because neither company has raised equity or debt financing in Hong Kong.
If anything, an A-share listing for Peak Sport would be favourable from an equity financing perspective given the premium valuations available, GF Securities analyst Albert Yip said in a note to clients in May.
In addition, the parent companies of Peak Sport and Dalian Wanda already both own 50%-plus stakes, making full buyouts relatively easy to achieve.
The two take-private attempts have sparked speculation over a new go-private trend for Chinese companies listed in Hong Kong.
Founder Xu and his family members are offering minority shareholders HK$2.6 per share to acquire the 38.8% stake they do not already own.
The offer price represents a 10.6% premium to the HK$2.35 closing price on Monday and is 35.4% more than the closing price immediately before news emerged in May that Xu was in preliminary talks to buy out the company.
The buyout offer is made via a scheme of arrangement, which means the buyer is required to get at least 75% acceptance from minority shareholders and less than 10% voting against the proposal at the extraordinary general meeting.
According to a company statement, Xu and his family will fully finance the offer with a loan facility from China Merchant Bank.
February 28 next year is the long-stop date by which the Peak Sport take-private must be concluded, including shareholder and court approvals.
Huatai Financial is the sole financial advisor to the Xu family.