Takeover offer on the menu for Tsui Wah founders

But analysts sceptical five main shareholders can meet consensus on likely deal

PUBLISHED : Wednesday, 20 July, 2016, 9:04pm
UPDATED : Wednesday, 20 July, 2016, 10:59pm

Restaurant chain Tsui Wah, which specialises in Hong Kong snacks such as condensed milk buns, saw its shares surge the most in more than three years on Wednesday after announcing its five major shareholders had been approached over a possible takeover.

Shares in the home-grown catering giant shot up as much as 23 per cent, following the statement that three companies owned by its five co-founders, including its chairman, had received a “third-party” bid for a possible acquisition of 62 per cent of the company.

The move comes just weeks after Tsui Wah posted a 54.5 per cent year-on-year slump in its net annual profits, dragged down by a tourism downturn in Hong Kong and mounting costs brought about by an ambitious expansion in the mainland.

Over the past year the company has also been rocked by a couple of high-profile departures, which analysts said on Wednesday could make it difficult for the five shareholders to reach a consensus on any deal.

One of the co-founders Cheung Wai-keung stepped down as a non-executive director late last year, while another, Ho Ting-chi, resigned as its chief executive in June.

Hannah Li, senior analyst with UOB Kay Hian, said: “A big obstacle for the potential deal is that any new proposals that will have a critical impact on the company would have to get a green light from all five of Tsui Wah’s co-founders, as stipulated by a binding agreement they previously signed.

A big obstacle for the potential deal is that any new proposals that will have a critical impact on the company would have to get a green light from all five of Tsui Wah’s co-founders
Hannah Li, senior analyst with UOB Kay Hian

“The interested ‘third-party’ could also be a catering business that is looking to broaden its brand portfolio, in Hong Kong or in mainland, although everything is unclear right now.”

Another analyst, to asked to remain anonymous, said: “Its expansion in mainland China is a bit too aggressive, and its management may hold polarised views on how to turn around the business.”

The restaurant chain had planned to raise its total number of outlets across the mainland and Hong Kong to more than 80 by the end of 2017, meaning another dozen at least in the coming year and a half.

“Unlike its peers such as Fairwood and Cafe de Coral, which mainly offer fast food, Tsui Wah positioned itself as a mid-to-high dinning option, and thus is more vulnerable to a retail cool-down,”UOB Kay Hian’s Li said.

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