- L’Occitane chairman Reinold Geiger is considering taking the company private for a rumored $6.5 billion
- The company isn’t in great financial shape, with net profits declining over 50% for fiscal year 2023
- L’Occitane’s share price rose as much as 13% during Monday trading at the news
It’s time for international beauty conglomerate L’Occitane to get a financial glow-up. The company’s chairman is apparently in talks to buy out other shareholders and take the company private in a deal that could go up to $6.5 billion.
It’s the latest of several take-private deals the Hang Seng has seen after years of poor returns. The result might be a short-term boom in M&A activity, but it does bring into question the long-term future of the index without any star companies listed on it. Here’s what we know so far.
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Is L’Occitane going private?
L’Occitane’s largest controlling shareholder, billionaire and chairman Reinold Geiger, is apparently about to take the famous beauty brand private for $6.5 billion.
The price is said to be HK$35 for each L’Occitane share Geiger doesn’t already own, representing a 37% premium on the share price. An exchange filing from L’Occitane said the rumored price was “false and without basis” but that if the deal were to go ahead, it would not be for less than HK$26 a share.
Bloomberg first reported the talks last month, which has now progressed to the point of an announcement arriving any day. Geiger already owns over 70% of L’Occitane and is rumored to be lining up financing to make the take-private deal official.
L’Occitane has 3,000 stores across 90 countries and employs over 8,500 people. The L’Occitane group also includes the Korean skincare brand Erborian and the collagen skincare line Elemis.
The beauty brand was first listed on the Hong Kong stock exchange in 2010, following a spate of similar deals emerging to take advantage of the burgeoning Chinese consumer market. The company raised $787 million at the IPO.
L’Occitane’s financial woes
The deal could be good timing for the brand. At the end of June, L’Occitane posted its full-year results, which revealed that the company’s net profit for the fiscal year ended March declined over 50%.
Net profit dropped to €115.11 million ($125.6 million), down from €242.03 million the previous year. Operating profit also fell sharply: for fiscal 2023, it was €239.13 million, down from €310.71 million last year.
Accompanying the worrying results was an explanation that the operating profit’s plunge “was mainly due to impairments on two underperforming brands” and that L’Occitane was still “cautiously optimistic” about the year ahead. L’Occitane cited the return of international travel and China reopening its economy as two tailwinds for the brand.
As a result, investment bank Jefferies downgraded its 2024 full-year forecast for L’Occitane by 16%. This was partly informed by L’Occitane’s revised operating profit margin guidance of 12% for fiscal year 2024.
What was the market reaction?
L’Occitane shares soared at the news as the markets reacted positively to the deal, closing 8% higher. The shares traded as high as 13% on Monday, marking the stock’s highest intraday trading point since February 2022 and the biggest intraday percentage jump since May this year.
The share price has now gained nearly 10% since the start of the year, though most of that gain came from the take-private news. That might give heart to Geiger, who was clear the deal may not go ahead.
“Nevertheless, the controlling shareholder is still considering its options, including the option of not pursuing any transaction at all, depending on market conditions and pending a feasible financing and structure option,” L’Occitane said in the exchange filing.
How is the Hong Kong stock market faring?
Anonymous sources said Geiger is considering relisting L’Occitane, which is headquartered in Luxembourg and Geneva, on a European stock market as early as next year, depending on macroeconomic conditions.
But taking L’Occitane off the Hong Kong stock market now marks a pattern of similar deals as the macroeconomic conditions dictate lower valuations. Dali Foods Group, a Chinese snack company, received an offer to go private from its controlling stakeholder in June. A few weeks after, cinema chain IMAX Corporation said it intended to acquire full ownership of its IMAX China subsidiary.
The reason? The Hang Seng Index has declined 35% in the last five years, making it the worst-performing major stock exchange. In comparison, the S&P 500 has gained 55% in that same period.
But there’s a silver lining to the Hang Seng’s sorry performance. The change of heart and the stock exchange’s decline has led to a mini-boom in M&A activity. Aside from IMAX, Dali Foods and now L’Occitane taking their companies private, partial deals are also taking place. Hong Kong billionaires, the Cheng family, offered to buy $4.5 billion’s worth of shares in NWS Holdings; tissue company Vinda’s founder is also looking to team up with another bidder as Essity reconsiders its majority stake.
The pick-up couldn’t come soon enough. China’s M&A volume plunged by 20% last year to $486 billion, which is the lowest level in eight years. There were 54 mega-deals (over $1 billion) compared to 2021’s 97 mega-deals.
Simmering U.S.-China tensions haven’t helped things, with the likes of Morgan Stanley, Bank of America and JPMorgan laying off their Asia Pacific investment banking employees earlier this year.
But the problem isn’t unique to China. Accounting firm EY reported that global IPO volumes fell 5% in the first half of 2023, with proceeds down 36% compared to last year. Despite this, the Asia-Pacific IPO market accounts for 60% of all deals in 2023 so far.
The bottom line
L’Occitane’s potential privatization has sent ripples through the financial world. Should the deal go ahead, it’s one of the most significant take-private deals this year. But Geiger remains tight-lipped about the company’s future, and we only have hearsay to go on right now until an official confirmation is made.
As for the Hong Kong stock exchange, we could see more take-private deals going forward if the returns continue to decline. This is good in the short-term, but only if other companies decide to list to replace the ones that have left. Investors will be looking to see if any frontrunners emerge.
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