0933.HK 0592.HK 2331.HK
Viva Goods plans to privatize Bossini with the one-for-five share swap, should investors get on board?

A company controlled by Olympic gold medal gymnast Li Ning has proposed a share swap that would take the well-known but now-struggling retailer private

Key Takeaways:

  • Viva Goods, controlled by Olympic gold medalist Li Ning, plans to privatize Bossini, citing a lack of trading volume
  • Bossini is shifting its focus to the segment of clothing for cyclists, but will face competition from more established brands

 

By Lau Chi Hang

He’s known for winning gold at the 1984 Summer Olympics in Los Angeles. But these days gymnast Li Ning is making headlines as a champion of privatizing underperforming companies and buying underperforming brands.

Investors took note earlier this year when rumors first surfaced that Li planned to link up with private equity to privatize his sports brand, Li Ning Co. Ltd. (2331.HK). Now, some are speculating that a recently unveiled plan by Li-controlled Viva Goods Co. Ltd. (0933.HK) to privatize Bossini International Holdings Ltd. (0592.HK) could be just a warmup before Li makes a play for the much larger sportswear company bearing his name.

Established in 1987 by Hong Kong garment tycoon Law Ting Pong, Bossini once expanded beyond its home to become a casual clothier with thousands of stores worldwide at its peak. But its business dwindled over time as it got overtaken by more nimble fast fashion brands. In 2020, Viva, working with another member of the Law family, purchased 66.6% of Bossini’s equity from Law Ka Sing, the son of Law Ting Pong, for just HK$46.62 million ($6 million).

The company has continued to underperform in the past three years, reporting combined losses of about HK$700 million between 2021 and 2023 and another HK$52 million in the first half of this year. In a bid to breathe new life into the company, Viva decided to reposition bossini.X, a sports and leisure brand, into a sports brand targeting cyclists.

The decision to privatize Bossini so soon into the transition has raised some eyebrows. Viva explained that the retailer needed an outside cash infusion to cover its continual losses, but that raising such funds via the stock market might be difficult given Bossini’s low trading volume. Privatization would also eliminate Bossini’s sizable costs needed to maintain its listing status.

Discount offer

Under the privatization scheme, Viva will issue one new share of its own stock for every five Bossini shares it will buy back from Bossini’s current shareholders, with the ultimate goal of delisting the company.

Viva’s stock closed at HK$0.54 on Oct. 16, the day of the announcement. That means the one-for-five swap Viva is proposing would entail purchasing Bossini’s shares for HK$0.108 each, representing a 12.2% discount to Bossini’s closing price of HK$0.123 the same day. The discount triggered a selloff of Bossini stock on Oct. 17 when trading resumed after a brief halt. Bossini shares ultimately closed down 16.3% at HK$0.103 that day, while Viva’s stock also fell 1.85% to HK$0.53.

The big question now, at least for minority shareholders, is whether they should accept or reject the privatization offer. Much depends on Bossini’s business prospects. If the company can get its house back in order and turn things around, then there’s less of a case for investors to swap their shares for Viva’s.

Revival unlikely

Clothing retailers come and go because it’s hard to stay on top in the fast-paced industry. When a major player declines, it’s extremely difficult to bring it back into fashion. Just ask Esprit (0330.HK), which was once a king in its class but is now slowly dying. Or Giordano (0709.HK), now lampooned as a maker of clothes for maids.

Bossini’s transition to cycling clothes is a potential new direction, but not one without strong competition from existing names like Assos, Castelli and Specialized.

Funding is also key for the transition. Given Bossini’s own shaky finances, it will have to look to Viva for financial support. But Viva’s attention is currently occupied by Clarks, which it acquired in 2022, and Haglöfs which it purchased this year. What’s more, Bossini accounted for just 5.2% of Viva’s revenue in the first half of this year, meaning the brand will be low on its priority list if the privatization succeeds.

The biggest concern, however, is the broader retailing environment. In addition to China’s economic slowdown and intense competition among clothing sellers, Bossini, as a traditional brick-and-mortar operator, also faces a major challenge from online shopping. Reflecting that reality, the company has been rapidly closing stores, dropping its count by more than half from 882 in the middle of 2021 to just 427 in June this year.

Such factors bode poorly for a company revival anytime soon. And the use of a share swap to fund the privatization means small investors won’t be able to cash out simply by accepting the buyout offer. Having to sell their shares at a discount – rather than the usual premium such bids typically bring – only adds to the sting.

Lack of momentum

At the end of the day, the buyout’s success, and any possible Bossini revival, will depend on how well Viva does. Li Ning acquired Viva in 2010 and listed it last year on the Hong Kong Stock Exchange’s main board. Since taking over Viva, Li has changed the company’s focus several times. At one time it was a sports agency and engaged in the sportswear businesses. Later it shifted to sports real estate, e-gaming and even the ski resort businesses.

Most recently, with the acquisition of Bossini, the Italian Testoni brand and Clarks, its focus seems to have shifted to leisure clothing and footwear. Such frequent and unpredictable changes can’t be too reassuring to investors.

Performance-wise, Viva has been average over the years. It was only able to eke out some profits thanks to the sale of some shares it owned in Li Ning Co. Ltd. It lost HK$119 million last year, and even its profit of HK$113 million in the first half of this year was somewhat disappointing since it was down 14.5% year-on-year.

Clarks currently accounts for 86% of Viva’s revenue, and thus that brand’s development will be pivotal to the company’s future success or failure. Viva’s latest results suggest that its Clarks revenue fell 6.2% in the first six months of the year to HK $4.38 billion. The company pointed out that one of its biggest challenges is inflation and high interest rates in the U.S. and Europe, which have led to higher living costs and weaker demand.

Clarks was already struggling before being acquired by Viva, having suffered from years of losses and even teetering on the brink of bankruptcy at one point. Whether Viva can turn the brand’s fortunes around remains a big question mark.

With Bossini unlikely to become a major contributor anytime soon and Viva lacking momentum with its other brands, the Bossini buyout offer only presents investors with two bad choices. Of course, there is a third alternative. They can wait to see if the stock market rallies, and then sell their shares in the market if Bossini and Viva both rise. But waiting could also prove risky if no rally comes and shares in both companies decline.

To subscribe to Bamboo Works weekly free newsletter, click here

Recent Articles