Li Ning, the founder and chairman of Li Ning Co, plans to sell a 25 per cent stake in the mainland sportswear retailer to Viva China Holdings, a sports talent management firm under his family's control.
The plan triggers concern Li may give up control of the sportswear business.
Shares of the Beijing-based firm fell as much as 6.2 per cent after resuming trading yesterday following a halt since Monday before closing at HK$4.60, down 4.8 per cent.
Viva China, which also resumed trading yesterday, following a suspension from last Thursday, soared 84.6 per cent to close at 12 HK cents.
"The deal will have no direct impact on Li Ning Co," said Zha Xiao, an analyst at China Merchants Securities. "Yet it still hit investors' confidence, as Li appears to be reducing his involvement in the company, and the private equity firm TPG is likely to increase control instead."
Li, a former Olympic gymnast, said yesterday he would increase his stake in the company "at an appropriate time".
Haitong International Securities analyst Elyse Wang said: %"Actually, he hasn't been involved much in the firm's operations over the past two years, and it seems his involvement will decrease further over time."
The retailer said in a filing with the Hong Kong stock exchange yesterday that Li and his brother Li Chun were selling 266.37 million shares, or 25.23 per cent of the company, for HK$1.36 billion to Viva China, which is listed on the Growth Enterprise Market and is 56 per cent controlled by the family.
The exchange website shows the brothers own about 35 per cent of Li Ning Co. United States private equity fund TPG Capital owns about 13 per cent and Singapore sovereign wealth fund GIC about 8 per cent.
"The transaction is not expected to result in any change to the business strategies, management and day-to-day operation of [Li Ning Co]," Li said.
Li, who set up the company in 1990, has long aimed to build a bigger sports business than one based solely on his eponymous brand of apparel and shoes.
He uses Viva China as a platform to develop businesses in sports talent management, event production and sports community development.
The company paid 1 billion yuan (HK$1.24 billion) for a piece of land for a residential and commercial complex in Shenyang, Liaoning province, in May last year.
In August 2010, the brothers signed an agreement to swap their combined 30.9 per cent stake in Li Ning Co for Viva China. But the deal was blocked by GEM's listing committee, which ruled that the acquisition constituted a reverse takeover.
Analysts said the deal this time was smaller and should be able to obtain approval from the regulators.
"It's very likely that Viva China will raise more funds to support its property project, as it would take five to 10 years to develop," Wang said.
Li Ning Co's market share has shrunk and its profit dropped dramatically in recent years because of intense competition from Nike, Adidas and domestic rivals, and weaker consumer demand.
The company's chief executive and chief financial officer have resigned within the past three months.