Li & Fung will take private its affiliate Integrated Distribution Services Group (IDS) via a scheme of arrangement for an outlay of up to HK$4.4 billion ($564 million).
Li & Fung intends to privatise IDS through a scheme of arrangement. Consequently, it is offering minority shareholders of IDS a choice of cash or Li & Fung shares for all the outstanding shares of IDS. For every IDS share held, the shareholders can choose to receive either HK$21 cash or .585 Li & Fung shares. The cash offer of HK$21 per share represents a 36% premium over the closing price of IDS on the Hong Kong Exchange (HKEx) on August 9, the last trading day before the shares were suspended pending an announcement, and a 51% premium over the average closing price for the three months before the shares were suspended.
IDS is an affiliate company of Li & Fung with 45% of the share capital of IDS owned by related shareholders, who are deemed to be acting in concert with Li & Fung.
Li & Fung is a trading company that supplies to large retailers such as Wal-Mart, Target and Abercrombie & Fitch. Last Thursday it announced the take private of IDS, a logistics services and distribution company, which derives most of its revenue from China. It made the announcement simultaneously with its half-yearly results and a statement about two acquisitions.
For the first six months of 2010 Li & Fung has grown its operating profit by 55%, which it attributed to “nascent economic recovery in the United States together with contributions from previous acquisitions and outsourcing deals”. For the six month period ended June 30 Li & Fung had a turnover of HK$51.8 billion on which it earned a core operating profit of HK$2.6 billion.
Li & Fung is buying New York-based Jimlar Corp and Chinese furniture exporter Kenas Furniture Group. Li & Fung withheld details about how much it has paid for the current acquisitions but made a point of announcing it still has a billion dollar war chest for acquisitions. Jimlar is a 1956-founded company in the footwear industry. It currently owns the iconic Frye boots brand and is also a licensee for Coach and Calvin Klein. Li & Fung said the Jimlar acquisition will add around $540 million of revenue in 2010. “The acquisition is a significant step in expanding the group’s onshore presence in the US as well as its capabilities in the footwear business,” said Li & Fung in a written statement. Kenas supplies furniture to retailers and lifestyle brands globally.
The trading firm explained in its HKEx filing that the privatisation of IDS supports the growth strategy of Li & Fung because: it strengthens Li & Fung’s footprint in Asia and particularly in China; it provides Li & Fung with a complete end-to-end supply chain solution; it provides the option of entering the food and beverage sourcing business at a later date; and it has the potential to enhance operational synergies and new business prospects.
J.P. Morgan is financial adviser to Li & Fung for the delisting. BNP Paribas is independent financial adviser (IFA) to the board of Li & Fung. IDS is yet to appoint an IFA.