HK tycoon Henry Cheng seeks to take control of Giordano International

The family of billionaire Henry Cheng Kar Shun has lodged a takeover bid control for the famous apparel retailer Giordano International, in a deal worth as much as HK$2.56 billion (US$326 million).  According to a document filed with the stock exchange, the family’s offshore unit, Clear Prosper Global, offered to buy 75.4 % of Giordano International which does not already own for HK$1.88 per share. The offer includes HK$34 million worth of outstanding stock options.

In a joint statement filed to the Hong Kong Stock Exchange on 23 June 2022, the Chengs and Giordano said the family's investment vehicle had offered to spend as much as HK$2.55 billion to buy all outstanding stock and share options under the Chengs' existing 24.6% leading stake. The Chengs' offer of HK$1.88 a share is conditional on reaching 50% acceptance among Giordano shareholders. Henry Cheng and his family stated in the announcement that they would seek to preserve Giordano's market listing, which would require at least 25% of shares to remain in public hands.

“The offeror intends to work together with the company’s management to review the structure, operation and business of the group with a view to enhancing and strengthening its business by, amongst other matters, taking advantage of the extensive network and experience of the offeror’s group companies and affiliates, especially in the retail sector,” the stock exchange filing said.

The Chow Tai Fook subsidiary and its affiliated parties currently hold 24.57% of Girodano’s shares. For the year to December 31, Giordano achieved a profit attributable to shareholders of US$20.5 million, a significant turnaround from the US$10.6 million loss recorded the preceding year.

Share trading resumed on 24 June 2022 after the details of the takeover bid were released. The offeror said it will preserve Giordano’s public listing and has no intention to make any major changes to the business, sack employees or sell any of its assets, according to the document.

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David Webb, a local shareholder rights activist who holds a 5% stake in Giordano, said in a tweet: "The Cheng family's cheeky HK$1.88 bid for Giordano is far below fair value, an attempt to preclude a competitive bidding process by reaching 50% before the retail recovery." He also added that "shareholders should reject and management should invite competing offers. Let the action begin."

Earlier in March this year, Giordano HK has planned to temporarily downsize its operations in the city due to the ongoing pandemic and the loss-making business in both Hong Kong and Macau. This came despite the business of the entire group improving last year.

The company's income in the Hong Kong and Macau markets was HK$355 million (US$45.37 million) for the year ended on 31 December 2021, down from HK$362 million (US$46.26 million) in 2020. The comparable stores’ sales grew by 8.7%, which mitigated the drop in total sales owing to the year-on-year store reduction from 62 to 51. Hong Kong and Macau recorded an operating loss, albeit significantly less than the previous year.

The improved performance was primarily due to the closure of loss-making shops and some rental reductions. However, Giordano said rental expenses in Hong Kong and Macau remained too high for the current challenging operating environment. The online business performed better than offline. Online sales increased by 29% year-on-year, primarily through the growth of third-party platform sales.

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