Hong Kong’s Belle époque ends

China’s biggest retailer of women’s footwear, Belle International, is set to go private after winning the approval of its shareholders.

Shareholders on Monday agreed to de-list Belle International, China’s biggest women’s footwear retailer, from the Hong Kong stock exchange following a wave of similar H-share take-privates by the likes of Dalian Wanda Commercial Properties and Intime Retail Group.

As Chinese queen of the High Street shoe shop and a 10-year bourse veteran to boot, retail investors, flocked to the company’s court meeting and extraordinary general meeting but appeared underwhelmed, despite giving management what they wanted.

One investor on his way in to the meeting room dubbed the offer price “quite petty” but said he would likely agree to sell to get his initial investment back, citing a weak retail sector.

Belle International received a privatisation offer in April from a buyer consortium consisting of Hillhouse Capital, CDH Investments and two of Belle’s executive directors at HK$6.30 cash per share. That valued the firm at HK$53.1 billion ($6.8 billion) and represented a 19.5% premium to the company’s last trading price on April 13 of HK$5.27 before the offer was announced.

But it is only slightly higher than the retailer’s initial public offering price of HK$6.20 on May 2007, so some investors were less than happy.

“I voted ‘reject’; the offering price is close to 10 years ago when it became listed,” said a second investor after the court meeting. “How could you compare [the value of] today’s money to 10 years ago? We are not street beggars,” he said, having been a shareholder since the IPO.

Fair value

Ahead of the meetings, questions also surfaced over whether an abnormal shareholder registration by Belle employees was linked to ensuring a successful EGM outcome.

The firm disclosed on July 7 that approximately 300 current employees of the group acquired shares after the take-private announcement “with their own funds” on an “independent and voluntary” basis.

Most of the 300 employees subsequently withdrew their shares from the Central Clearing and Settlement System (CCASS) to become registered shareholders and all paid between HK$6.09 and HK$6.10 on June 26 and June 28, according to the filing.

“If Belle is not involved in the purchase of shares by 300 employees, all or most of whom promptly withdrew their shares from CCASS to become registered shareholders, then how does it know that they all paid either HK$6.09 or HK$6.10 on 2 trading days?” asked shareholder activist David Webb in his blog.

However Sheng Baijiao, Belle International’s chief executive, told reporters after the EGM that the firm had neither directed its employees to do so nor had it funded their purchases. “Only 1 person out of the 300 employees from the CCASS made the vote today,” he said.

Despite the frustrations of some retail investors, the price offered seemed fair to independent evaluators.

Independent proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis both recommended shareholders to vote “for” in their respective reports to institutional investors, according to copies obtained by FinanceAsia.

ISS on July 3 said the “the P/E ratio, EV/EBITDA ratio and P/B ratio as implied by the cancellation consideration price are within the range of comparables” [see the graph below].  

[Source: ISS] Click for full image

Sheng said he would remain in the company after the take-private given his current contract would not end until two years later and that it was not clear at this stage whether seeking a listing on the mainland A-share market – where there are typically higher valuations – would be the next move for Belle.

“That’s something the buyer is [yet] to tell me. Plus, it takes a long time and a long queue,” he told FinanceAsia.

As per A-share market listing requirements, a company has to wait three years to apply for a mainland listing after a change in its majority shareholder ... never mind the queue after filing the application. Upon privatisation, Hillhouse will own 57% of the company, while CDH will have a 12% stake and the company’s management team will own 31%. 

With a physical network of over 20,000 stores, Belle dominates China’s footwear industry, owning brands including Mirabell, Teenmix, and Staccato as well as the Fato brand for men. It is also the local distributor for international sports brands including Nike, Adidas, Converse and Timberland.

Once private, the firm will leverage the private equity experience of Hillhouse Capital and CDH Investments to build up the business to cope with the rise of e-commerce.

Bank of America Merrill Lynch offered financial advisory to the buyer.

This story has been updated with details of mainland re-listing rules.

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