Ports Design chairman Alfred Chan Kai-tai, the majority shareholder of the high-end fashion retailer (00589.HK), is looking to buy out the rest of the shareholders at a steep discount.
The luxury brand, which distributes its own PORTS apparel as well as BMW and Armani lifestyle accessories, plans to delist after Chan bought a 6.8 percent stake from Fidelity, triggering a general offer to all other shareholders for HK$1 billion.
At an offer price of HK$3 per share, Chan is buying at a 90 percent discount to the share’s peak price of HK$30 in 2008, and a mere 27 percent premium to its last price before it was suspended from trading in December.
Once a fund managers’ darling, Ports Design was listed in 2003 at a debut price of HK$14 after Chan, a Canadian Chinese, bought the famous brand from founder Luke Tanabe of Toronto in 1989.
But it was Chan’s China dream that got the company into trouble. Three years ago, Ports, which operated in 60 mainland cities including Beijing, Shanghai, Chongqing, Shenzhen, Tianjin, Xi’an and Dalian, was embroiled in an accounting scandal. Its shares started to fall from HK$11 and never came back.
In explaining its privatization move, Ports said sentiment for high-end fashion was poor in China, which we think could related to the anti-corruption campaign.
“PDL’s (Ports Design Limited) businesses have been increasingly impacted by the macro trends affecting the PRC apparel retailing sector. In particular, the policies to promote frugal living styles initiated by the PRC Central Government have put a dent on luxury goods demand,” the company said.
First-half profits last year dropped 60 percent from a year earlier to HK$55 million on a 10 percent revenue fall to around HK$960 million as exorbitant rents in prime retail locations and increasing staff costs ate into earnings.
To make its privatization case more appealing, Ports Design pointed out that it had to keep spending to increase the brand’s visibility and international exposure. It had to open stores and renovate old ones. Last year, for example, it opened its flagship store on Canton Road in Tsim Sha Tsui and another one on Nanjing Road in Shanghai. No dividend will be in sight during the brand building, it said.
One institutional investor who got seriously burned was Fidelity, which first disclosed its 5 percent stake in 2012 when Ports was trading at above HK$12. Fidelity eventually raised the stake to about 9 percent on an average price of HK$7.
We estimate Fidelity lost at least two-thirds of its investment, which it put at HK$450 million at least. It will get back HK$132 million in return.
Another big loser was Denver Investment Advisors, which owns 10 percent but sold a partial stake for as low as HK$2.59 in November last year after accumulating the stake at over HK$6 over the last two years.
So guess who’s having the last laugh.
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