(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Robyn Mak
HONG KONG, March 12 (Reuters Breakingviews) - Saying goodbye to Hong Kong will be hard. Luggage-maker Samsonite International , skincare group L'Occitane International
and Asian real estate fund manager ESR have emerged as potential buyout targets as stocks languish in the financial hub. These businesses are broadly doing well and could command a higher price tag on another bourse now or later. But that also means shareholders can demand a generous premium from any buyer.
There have already been four privatisation offers announced this year for Hong Kong-listed companies, worth a combined $4 billion. That's more than in the previous two years combined, per Dealogic data. All involve mainland Chinese firms, whose shares are among the world's worst performing equities over the past year. China Traditional Chinese Medicine , for instance, was trading at less than half its peak market value reached in 2018 when a consortium led by its state-owned parent Sinopharm Group announced an offer last month worth nearly $3 billion.
The next crop of targets looks set to be larger and involve global names. Buyout firms are eyeing Samsonite and L'Occitane while Warburg Pincus and other top shareholders at ESR are "studying options", Bloomberg reported. Each of those potential transactions would probably roughly equal, if not surpass, the $5.8 billion deal for Belle International in 2017, Hong Kong's largest buyout. If central banks cut interest rates this year, funding costs will drop, which would also help spur mega deals.
Unlike many China-focused companies, these businesses are growing steadily. Shares of Samsonite, which owns Tumi and American Tourister, have rebounded to their pre-pandemic levels and the company is forecast to deliver a 17% jump in earnings this year, LSEG data show. Yet the U.S.- and Luxembourg-based enterprise trades on less than 9 times forecast EBITDA for the next 12 months, below some New York-listed consumer brands like VF Corporation , owner of Vans and EastPak, and Amer Sports , which makes Salomon skis and Arc’teryx parkas.
Likewise, listed peers in Europe and Asia sport higher valuation multiples than L'Occitane and ESR. The latter's stock is down 40% from its 2019 initial public offering price.
Hong Kong rules require at least 75% approval for a buyout from disinterested shareholders. At Samsonite, institutional investors like Janus Henderson Investors and Fidelity Management & Research can push for higher premiums. L'Occitane Chair and 70%-owner Reinold Geiger, who abandoned his own plans to privatise and relist the company in Europe last year, will probably require a compelling offer from its suitor, reported by Bloomberg to be Blackstone . If the private-equity firm teams up with Geiger, the two will have to please minority shareholders like Butler Hall Capital, which has already declared any offer below HK$45 a share - a 54% premium to Monday's close - would undervalue the company. Escaping Hong Kong's value trap will be costly.
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CONTEXT NEWS
Carlyle Group and KKR have shown "preliminary interest" in Hong Kong-listed luggage maker Samsonite International, Bloomberg reported on March 7, citing unnamed people familiar with the matter. Other private equity firms including Bain Capital and CVC Capital Partners are making early assessments about a potential bid, the report added, and may consider teaming up.
Separately, ESR's largest shareholders are "studying options" including taking the Hong Kong-listed company private, Bloomberg reported on Feb. 21, citing unnamed people familiar with the matter. The real estate asset manager has also attracted preliminary interest for the company or some of its assets, the report added.
U.S. private equity firm Blackstone is also considering a bid for skincare company L'Occitane, Bloomberg reported on Feb. 6, citing unnamed people with the matter.
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(Editing by Antony Currie and Katrina Hamlin)
((For previous columns by the author, Reuters customers can click on robyn.mak@thomsonreuters.com; Reuters Messaging: robyn.mak.thomsonreuters.com@reuters.net))
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