L’Occitane sets a high bar for Hong Kong exits
01/05/2024 08:00
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Robyn Mak
HONG KONG, April 30 (Reuters Breakingviews) - Chairman
Reinold Geiger’s offer to take private L’Occitane 0973.HK , his
Hong Kong-listed skincare group, values it at 6 billion euros
excluding debt. It’s a decent 30% premium to an undisturbed
price in early February, and it sets a high bar for other
buyouts in the Asian hub to cross.
The Luxembourg-based company’s exit from Hong Kong has been
a long time in the making. It was among the first Western names
to list in the Chinese city in 2010 to boost exposure to the
fast-growing economy. Yet over the past decade, the stock’s
total return of 87% has lagged the 125% and 318% at New
York-listed Estée Lauder Companies EL.N and L’Oréal OREP.PA
in Paris respectively. It suffered from the China discount. Last
year, Geiger, who owns over 70% of the company, confirmed he was
mulling an offer of “no less” than HK$26 a share, only to
abandon those plans.
Monday’s revived bid, at HK$34 a share, is a tad above the
stock’s all-time high and values the enterprise at roughly 12.5
times forecast next-12-month EBITDA, according to someone
familiar with the deal, well above the 10-year average of 10.5
times. L’Occitane’s stock closed at 5% below the offer price on
Tuesday, indicating Geiger’s bid may be enough to please
minority owners.
Funding Hong Kong’s largest take-private deal in an era of
high interest rates is no small feat. Geiger has tapped
Blackstone and Goldman Sachs Asset Management for a
shareholder’s loan funded by paid-in-kind notes. The duo is
providing roughly 1.6 billion euros – over 90% of the total
consideration, someone familiar with the matter told
Breakingviews. So-called PIK loans are a type of mezzanine
financing and allow firms to roll up interest payments to be
paid in later years as additional principal.
The terms of the financing for the deal haven’t been
disclosed but assuming an 8% cost of debt, interest expenses at
L’Occitane would total roughly 169 million euros. That compares
to the forecast 312 million euros of operating profit the
company is expected to generate in the next fiscal year, LSEG
data show. An interest cover ratio of just under 2 times isn’t
bad, especially as non-traditional lenders may allow Geiger to
defer interest payments if needed while he restructures the
business and seeks a potential re-listing in Europe.
Other Hong Kong-traded companies mulling an exit from the
city will have a tougher time. Lenders will be reluctant to
extend loans to businesses that don’t have as clear a path to a
re-listing. L’Occitane has a natural look that’s hard for others
to wear.
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CONTEXT NEWS
A group controlled by L’Occitane chairman and controlling
shareholder Reinold Geiger has offered to take the Hong
Kong-listed company private in a deal that values the firm at 6
billion euros excluding debt, the company announced on April 29.
The buyout group, which jointly holds 72.64% of the
Luxembourg-based company, has offered HK$34 per share for the
rest it does not already own. That represents a premium of 31%
over the stock’s closing price on Feb. 5, the last trading day
before news that Blackstone was considering a bid was reported
by media. The buyers said they will not increase the price.
The consideration of around 1.7 billion euros will be
financed by external debt facilities and a shareholder’s loan in
turn funded by a paid-in-kind loan note, the company said.
Affiliates of Blackstone and Goldman Sachs will provide about
1.6 billion euros in financing, someone familiar with the deal
told Breakingviews.
L’Occitane shares were up 9.7% during early afternoon
trading in Hong Kong on April 30, at HK$32.35, after its shares
were halted on April 9.
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Graphic: L’Occitane is valued less than Europe-listed peers https://reut.rs/4aXlTYX
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(Editing by Una Galani, Katrina Hamlin and Oliver Taslic)
((For previous columns by the author, Reuters customers can
click on MAK/
robyn.mak@thomsonreuters.com; Reuters Messaging:
robyn.mak.thomsonreuters.com@reuters.net))