HONG KONG -- Shareholders of Li & Fung, the world's largest sourcing company, on Tuesday gave the green light to a 7.2 billion Hong Kong-dollar ($928.9 million) proposal that will allow its founding family to take the company private during a difficult business environment.
The move will see the century-old business icon delist from the Hong Kong Stock Exchange, where it had its trading debut in 1973 and had been one of the most popular blue chip stocks among investors until it lost that status in 2017.
Once a formidable middleman connecting retailers in the West with manufacturers in the East, Li & Fung's business increasingly has been challenged by e-commerce, rising protectionism, and economic uncertainties amid the coronavirus pandemic. The company has lost 95% of its market value since 2011, with its annual revenue almost halving.
The pitch to investors from the family's fourth generation chief executive, Spencer Fung, was that taking the company private was a necessary step for turning it around amid mounting uncertainties. A majority of shareholders agreed with him.
The proposal, which valued the company at HK$10.7 billion, was approved by 97.15% of shareholders, with 2.85% rejecting the deal, at a shareholders' meeting in Hong Kong on Tuesday. Friday, May 15, will be the 114-year-old company's last trading day.
Despite the large margin, the deal appears to have been less popular among small shareholders, with 51 out of 251 people at the meeting voting against the go-private proposal.
"I would like to deeply thank our shareholders for their long-term support of our company through nearly three decades of change in the global retail industry," William Fung, group chairman and Spencer Fung's uncle, said in a news release after the vote.
Under the proposal, Singapore logistics giant GLP Group will pay HK$7.2 billion for the 67.67% stake controlled by Li & Fung's public shareholders, while the Fung family will hold the remainder of the shares and retain 60% of voting rights.
Bruce Rockowitz, who served as CEO at Li & Fung from 2011 to 2014, told the Nikkei Asian Review in an interview last month that he believed taking the company private was the right move, even though he would take a huge loss as one of the largest individual shareholders of the company.
"It pains me of course," Rockowitz said. He acquired Li & Fung's shares when they were more than HK$20 each. Li & Fung's stock closed at HK$1.21 a share on Tuesday. "When I look at it in the world, personally I think it's a very fair deal for shareholders. It won't get to HK$5 unless you do something radically."
Founded in Guangzhou in 1906 before the collapse of China's last imperial dynasty, Li & Fung started out selling porcelain, silk and other handicrafts to the West before moving to Hong Kong in 1937. There it enjoyed rapid growth, reflecting Hong Kong's role in connecting China to the world and America's post-World War II appetite for consumer goods.
During Li & Fung's heyday, the company's annual turnover more than tripled to nearly $20 billion between 2004 and 2014. Its success made it a favorite case study at business schools and propelled the Fung family into prominence in Hong Kong and China.
But it soon rapidly declined. In 2019, turnover had fallen by nearly half to $11.4 billion from 2011 as the retail industry was hit by closures and bankruptcies. Gross margin fell from a high of 15.3% in 2011 to just 10.7% last year. In a blow to the company's reputation, it lost its position in 2017 as one of the 50 constituent stocks of the Hong Kong Stock Exchange's benchmark Hang Seng Index.
Despite the majority support to take the company private, some small shareholders raised eyebrows over the timing of deal. While the HK$1.25 per share offer by GLP represents a 150% premium to the price before the proposed deal was made public, many still believe it is too cheap.
A shareholder in Hong Kong told public broadcaster RTHK after Tuesday's meeting that he believed the company was taking advantage of the current economic weakness and that it was "unfair" for small shareholders. The shareholder, who identified himself as Mr. Chan, claimed that he has held shares in Li & Fung for more than a decade but will have to take a loss of about HK$3 million to HK$4 million.