What’s prompting Hony Capital to pursue L&M Handbags?

Tuesday, May 31, 2016

(EJ Insight by Tin-yau KO) – The handbag maker said in an exchange filing Monday that its controlling shareholders have agreed to sell their 50.03 percent stake to Hony Capital, a Beijing-based private-equity firm backed by Lenovo.

Hony made a cash offer of HK$487 million or HK$1.18 per share, marking a discount of 20.3 percent to L&M Handbags’ closing price on May 26 prior to a trading halt or 18.1 percent discount to the average trading price in the five days prior to the suspension.

After the deal, Hony will become the biggest shareholder, while the Lee family members will hold no interest at all.

Upon completing the transaction, Hony will be required — under Rule 26.1 of the Takeovers Code — to make a mandatory unconditional cash offer for all the remaining issued shares of L&M Handbags at the same price of HK$1.18 per share.

This means that individual investors who may have bought the company stock at HK$1.48 per share on May 26 will suffer a 20 percent loss due to the privatization.

It is interesting to note that L&M Handbags’ share price fell only 4 percent after trading resumed on Monday, closing at HK$1.42, nearly 20 percent higher than the offer price.

That shows that minority shareholders haven’t dumped their shares in panic, and that some investors are still willing to buy the stock at a 20 percent premium from the market.

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