The founder of Li Ning Co Ltd plans to sell a 25 per cent stake in China’s best-known sportswear group to his talent management firm Viva China Holdings Ltd for $175 million,knocking Li Ning’s shares on concerns about his commitment to the group.
Viva China is controlled by former Olympic gymnast Li Ning,the founder and chairman of the company that bears his name and which is backed by US private equity group TPG Capital and Singapore sovereign fund GIC.
Shares in Viva more than doubled on the news,but shares in Li Ning fell more than 6 per cent as investors said the deal suggested the group’s founder was gradually stepping away from the business.
Investors are unhappy with the company as it suggested that founder Li Ning is reducing his involvement,said Steve Chow,analyst at Kingsway Group Research.
Rival Anta Sports Products Ltd benefited from the doubts about Li Ning,adding nearly 5 per cent to HK$7.24. Li Ning also competes with Adidas and Nike.
Analysts said Viva,which had a market value before Wednesday’s share gains of about $160 million compared with Li Ning’s market value of $658 million,benefited from the injection of a potential growth asset.
In a filing to the Hong Kong bourse,Viva said it would buy 266.37 million Li Ning shares,or a 25.23 per cent stake,from Victory Mind Assets Ltd and Dragon City Management (PTC) Ltd,which are controlled by Li Ning and his brother Li Chun.
Viva did not hold any Li Ning shares prior to the deal.
The transaction is not expected to result in any change to the business strategies,management and day-to-day operation of the group,Hong Kong-listed Li Ning said in a statement.
Viva said the purchase was aimed at expanding its business scope in China in the sports sector and the two companies could explore strategic development opportunities in sports advertising and sponsorship. It would settle the deal by issuing new shares after a five-for-one share consolidation.
The stake sale comes three months after Li Ning,whose share price has more than halved since March,named Li Ning and TPG managing director Kim Jin-Goon to lead the company after then-CEO Zhang Zhiyong quit.
Last Friday,Li Ning said its chief financial officer,Chong Yik Kay,had resigned,marking the latest departure from the ranks of its senior management as its grapples with a slowdown in the world’s second-largest economy.
China’s sportswear makers are struggling with a slowdown in the country’s $19 billion market,and Li Ning,which is also struggling to reduce massive inventories,is restructuring to address changes in the fiercely competitive sector.
In August,Li Ning posted an 85 per cent slide in first-half net profit as unsold inventories piled up. Marketing costs rose and it warned full-year revenue would fall,and said it may post a loss. ($1 = 7.7512 Hong Kong dollars)