Giordano shares suffer fallout

PUBLISHED : Wednesday, 06 September, 2006, 12:00am
UPDATED : Wednesday, 06 September, 2006, 12:00am


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Retailer's stock dives 11pc after Japanese group Fast Retailing drops plans to acquire a stake

Shares of Giordano International, which operates about 1,700 apparel shops in Asia, fell as much as 16.3 per cent at one point after Japan-listed Fast Retailing said it had dropped plans to acquire a stake in the clothing retailer.

Giordano shares closed yesterday at HK$4.03, down 11.23 per cent from HK$4.54 on Monday before Fast Retailing, which sells products under the Uniqlo brand, issued a statement saying it would not make an offer.

The shares, which had jumped almost 18 per cent to HK$4.80 on August 7 after it was disclosed that Fast Retailing had approached Giordano on a possible offer, fell to as low as HK$3.80 at one point yesterday. About 58.84 million shares changed hands compared with the daily traded average of 6.8 million shares in the past 12 months.

Fast Retailing, which has about US$1 billion cash on hand, has 30 Uniqlo stores overseas including seven in the mainland. Control of Giordano would have given it access to 714 more mainland outlets and about 100 in Hong Kong.

The Japanese retailer said on Monday night that 'Giordano's current share price is not truly reflective of the operational state and thus the inherent value of the company' as Giordano's first-half operating profit slumped 25.2 per cent to HK$184 million. Net profit fell 19.3 per cent to HK$151 million as sales declined about 6 per cent.

Giordano's management had also been 'reluctant to enter into any meaningful dialogue'. The Japanese company reserved the right to make or take part in an offer for Giordano's shares within six months 'if there is any material change in circumstance'.

Fast Retailing's acquisition record indicated that it preferred to keep the management of target companies in place after takeovers, which were usually not hostile, an analyst said. Giordano's top five institutional holders control almost 51 per cent of the company, while the management holds less than 3 per cent.

Even so, 'the earnings decline for Giordano should have been expected as it was forecast in various research reports,' the analyst said. 'This can hardly be justified as a reason for pulling back from making an offer.'

Giordano spokesman William Yue said yesterday the main reason for the management's reluctance for a dialogue was that the Japanese retailer had not made a concrete offer.

It was also revealed yesterday that Giordano chairman Peter Lau increased his personal stake in the company from 1.52 per cent to 1.62 per cent, buying shares 12 times after having dinner with a representative of Fast Retailing on June 6. However, he said he made no more purchases after the Japanese firm's formal offer on June 23.

Mr Yue said the chairman's purchases were made because of the low share price of the company during that period.

Fast Retailing hired HSBC Holdings to advise on the bid while Giordano hired Goldman Sachs Group as adviser, the Economic Times reported last month.