Initially there was only one seller, who offered 61.9 million shares, or approximately 1.8% of the company, at a price between HK$23.30 and HK$24. The price range represented a discount of 2% to 4.9% to yesterdayÆs (March 29) close of HK$24.50.
Citigroup acted as sole bookrunner for the transaction, which was launched after the Hong Kong market closed and was said to have generated good momentum among Asian investors. However, the bookrunner kept the deal open into the late evening Hong Kong time to give existing Li & Fung investors in the US a chance to participate.
After the US market opened another institutional investor decided that it too would take the opportunity to sell shares in order to capture some of the strong interest for the initial block. Citigroup agreed to combine the two blocks into one and offer all the shares to investors on the same terms, except for the larger deal size.
The second shareholder offered 15.3 million shares, which effectively increased the initial offering by 24.7% to 77.2 million shares, or about 2.3% of the company. Sources say one of the two sellers divested its entire stake, while the other one still holds shares in Li & Fung after yesterdayÆs disposal. Neither of the sellers was disclosed.
According to sources familiar with the deal, the price was fixed in the upper half of the range at HK$23.765 for a 3% discount to yesterdayÆs close.
The combined deal was a about four times covered and attracted more than 70 investors, they say. Half of the demand came from Asian investors, approximately 30% from the US and 20% from Europe.
It wasnÆt clear why the investors chose to sell at this time, but the share price has been on a downward trend since the companyÆs 2006 earnings report on March 21 came in slightly below the average forecast, as compiled by Bloomberg. The share price has fallen in five of the six sessions since then, losing a combined 9.8%, including a 1.6% decline yesterday.
The share price has risen 64% from last yearÆs low of HK$14.90 in June, however, and reached an all time high of HK$29 on February 12.
A key concern is that the potential for a slowdown of the US economy and of consumer spending will eat into Li & FungÆs top line. The company generated more than 70% of its revenues from the US last year, sourcing goods for market giants like Wal-Mart Stores.
Acquisitions outside the US are meant to help the company diversify its earnings stream and the addition of new businesses helped boost last yearÆs revenues by 22% to $8.7 billion, while net profit increased by 23% to $282 million. Managing director William Fung told investors at the time of the release that the company is on track to meet its $10 billion revenue target for 2007 and added that this yearÆs profit and sales growth should both exceed last yearÆs numbers.
The acquisition of the purchasing unit of GermanyÆs largest department store operator, KarstadtQuelle, in 2006 will add $1 billion of sales this year, Fung said in August.
However, UBS cut its net profit forecasts for the company by 12%-13% for 2007 and 2008 in the wake of the earnings report. It also lowered its recommendation of the stock to ôneutralö from ôbuyö, saying its was already trading at fair value.
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