Fashion retailer Esprit Holdings' HK$3.88 billion buyout of its 10-year mainland joint-venture partner, China Resources Enterprise (CRE), sent the shares of both companies falling yesterday.
Esprit dropped HK$1.50 or 3 per cent to close at HK$48.45 after some analysts criticised the company for paying a hefty premium for the 51 per cent stake it does not own in the venture, Esprit China.
In what Esprit executive chairman Heinz Krogner-Kornalik described as 'a fair price', the offer values Esprit China at about HK$7.6 billion, or 12.4 times its net asset value of HK$612 million as of September 30.
The deal will mean a HK$3.2 billion one-off gain for CRE, which will now focus on its supermarket chains, breweries and food processing businesses.
Shares in CRE shed 10 HK cents or 0.36 per cent to end at HK$27.70.
'The purchase price is generous - at a 35 times price-earnings ratio,' VC CEF Brokerage director Louis Tse Ming-kwong said. Esprit has a price-earnings ratio of 13 times. 'It shows Esprit is very keen on gaining a bigger foothold in China.'
Some brokers said negotiations about a deal became public a few months ago, suggesting investors were prompted to 'sell on news'.
