Apr 30, 2017
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Private equity offer values HK shoe giant Belle at $6.8bn as its seeks transformational change

Apr 30, 2017

A consortium led by private equity firms Hillhouse Capital Group and CDH Investments offered on Friday to buy Belle International Holdings Ltd in a deal valuing the entire Hong Kong-listed shoe retailer at about $6.8bn.

The move follows a similar transaction in January, when e-commerce giant Alibaba Group Holding Ltd led a $2.6bn bid to privatise department store operator Intime Retail Group Co Ltd, underscoring the difficulties traditional retailers are facing from competition with online rivals.

Belle, which distributes several sportswear brands including Nike, Adidas, Puma and Converse, said in a securities filing it has experienced "unprecedented challenges," particularly from e-commerce and shopping malls that compete with its main sales channels in department stores. "A fundamental transformation is necessary in order for the company to compete effectively and solidify its long-term leadership in the Chinese ladies footwear market," CEO Sheng Baijiao said in the filing.

Hillhouse and CDH joined with Yu Wu and Sheng Fang, directors at Belle, to offer HK$6.30 per share in the company. The price is equivalent to a premium of 20% from Belle's closing price before the trading halt and values the company at HK$53.1bn ($6.8bn).

Hillhouse, which has invested in major Chinese internet companies including Baidu Inc, Tencent Holdings Ltd and ride-hailing firm Didi Chuxing, will end up owning 56.8% of Belle after the deal is completed, with CDH taking a 12.1% stake, according to the filing.

A group of Belle's management, including Yu and Sheng, will own the remaining 31.1% of the company.
Bank of America advised the buying consortium and will extend HK$28bn ($3.60bn) in acquisition financing to the group to help fund the share purchase.

Chief Executive Sheng and Belle's chairman Tang Yiu have accepted the offer for their combined 25.8% stake.
Sheng said the transformation can be more effectively implemented if the company is privatised and free from "short-term distractions arising from the public equities" as it also involves risks.

Trading of Belle's shares has been halted since April 18 at the company's request and will resume on Tuesday, after a public holiday in Hong Kong.

Shares of Belle, which has a market value of $5.7bn, gained nearly 21% so far this year, reversing a 25% slide in 2016.
China's top footwear retailer, which has over 20,000 mainland outlets, had warned in March that it expected to see a 15%-25% fall in profit when it reports full-year earnings in May as shifting consumer style preferences put pressure on its shoe business.

Belle also said adjustments to its share award scheme as part of an incentive program to management had led to a significant increase in expenses.


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