Yue Yuen to sell its 62.4 percent stake in Chinese footwear retailer Pou Sheng International as part of the HK$10.9 billion privatization plan ($1.39 bn).
Yue Yuen will net to receive HK$6.76 billion (US$864 mm) from the proposed plan. Part of the gain will be distributed to its shareholders in a one-off special dividend with rest used for general working capital.
Pou Chen is offering HK$2.03 per share to Pou Sheng shareholders. The price represents a 31.8 per cent premium over the HK$1.54 per share closing price on Friday.
The privatization offer needs shareholders’ approval but is expected to be completed by May 30. Pou Sheng will cancel its listing status in Hong Kong.
Yue Yuen said it plans to return part of the HK$6.8 billion as a one-off special dividend to its shareholders while the rest will be used for general working capital.
Pou Sheng was spun off from Yue Yuen and listed in Hong Kong in 2008.
In a joint statement, Yue Yuen and Pou Chen wrote that the the sporting goods industry is “experiencing unprecedented changes and challenges, in particular (i) the rise of online shopping, as seen from the rapid growth of e-commerce platforms, the integration and collaboration of online and offline operators as well as the change in consumers’ expectations on good shopping experiences with online and offline channels complementary to each other; and (ii) increased market competition, such as more aggressive and frequent promotions among sportswear brand customers and various market players’ aggressive experimenting with new store formats. Faced with these changes and challenges, the Pou Sheng Group has been exploring and investing heavily in a variety of initiatives to adapt to the shifting market dynamics, such as (i) expanding omni-channel capabilities; (ii) planning organized promotional activities; (iii) enhancing store offering; and (iv) providing sports-related content and services.”
As a result, Pou Sheng Group said “significant investments” will be required that “may involve execution risks that
could impact on Pou Sheng’s performance in the near term. ”
The statement added, “In view of this, the Pou Chen Board and the Pou Sheng Board (other than the independent non-executive directors of Pou Sheng pending the advice of the Pou Sheng IFA) believe that the aforesaid initiatives are best performed with Pou Sheng under direct 100% ownership of Pou Chen, given that (i) Pou Sheng needs to be very flexible in transforming its operations in a timely fashion; (ii) Pou Sheng will enjoy more advantageous financing and coordinated internal treasury management under Pou Chen; and (iii) Pou Sheng will benefit from a streamlined corporate and management structure and an enhanced sharing of expertise.
Furthermore, the Pou Chen Board and the Pou Sheng Board (other than the independent non-executive directors of Pou Sheng pending the advice of the Pou Sheng IFA) are of the view that the current valuation level and low liquidity in the trading of Pou Sheng Shares indicate that Pou Sheng’s listing status is ineffective in providing a sufficient
source of funding for Pou Sheng’s business and growth.
