Li & Fung to pay HK$7b for logistics firm IDS
Li & Fung, the biggest supplier of clothes and toys to United States retail chain Wal-Mart Stores, will pay HK$7 billion to buy sister company Integrated Distribution Services (IDS) as it boosts its logistics foothold on the mainland.
Li & Fung will offer HK$21, or 0.585 of its own stock, for each share in IDS.
Parent Li & Fung Group, which owns 44.94 per cent of IDS, has chosen to be paid in stock. If all other IDS shareholders opt for cash, Li & Fung will pay out HK$4.4 billion.
Analysts believe the main reason for the privatisation was to reduce operating costs.
'The costs of gaining approval from minority shareholders for large transactions such as acquisitions, given the small turnover of IDS, might be greater than the benefits Li & Fung could get from having a separate company listed,' said Kenny Tang Sing-hing, an executive director at Redford Asset Management.
The merger of IDS' Asia business into Li & Fung also diversifies the portfolio of the company. Li & Fung, which sources consumer goods for retailers such as Wal-Mart, said the deal was important because the acquisition could 'help complete the world network for its business'.
IDS provides logistics and distribution for Li & Fung. It had a market value of HK$5 billion based on Monday's closing price of HK$15.42, while its parent company had a market value of HK$143.8 billion.
According to Bloomberg, Li & Fung last month paid US$140 million to buy three firms: Jackel Group, which runs packaging, perfume and personal-care businesses; denim clothing company HTP Group; and Cipriani Accessories, a designer, distributor and importer of accessories in the US, Canada and Mexico.
Li & Fung yesterday announced its first-half net profit rose 55 per cent to HK$2.17 billion, its best growth in more than a decade because of the recovery of the US market.
An interim dividend of 38 HK cents per share will be paid, up from 26 HK cents last year.
The reason for the privatisation is to cut operating costs
Under the plan, the amount Li & Fung will pay for each share of Integrated Distribution Services, in HK$: $21