A casual approach

Cheap but not so cheerful

Hong Kong clothing brands are out of fashion with Chinese consumers. That diminished appeal was epitomised last week by how little attention was given to a proposed takeover of one of the city’s biggest casual wear labels.

The apparel brand in question – Giordano – is currently wrestling with a takeover attempt by CTF Enterprise, the family business that controls China’s biggest jewellery retailer Chow Tai Fook.

Giordano was a major name in China 30 years ago at a time when the country was opening up its retail sector to overseas investors. In 1992 the Hong Kong firm launched its first few stores in Guangzhou and Shenzhen and its casualwear was the embodiment of cool for younger mainlanders of that generation. In the same year Giordano went public in Hong Kong. Unsurprisingly, its rapidly growing operation in China was touted as its biggest selling point.

The Hong Kong firm also has a history of unlikely bedfellows as major shareholders. For a lengthy period it counted as key players on its stock register: Jimmy Lai, an outspoken media tycoon detained since last year on national security allegations; China Resources Enterprise (now CR Beer), which started life as a trading front for the Communist Party’s commercial activities in Hong Kong (see WiC565); and Julian Robertson’s Tiger Global hedge fund.

Giordano was cofounded in 1981 by Lai. Fund managers who later bought into the IPO were hopeful its joint venture partner and shareholder China Resources would then help the Hong Kong brand expand aggressively into mainland China. Then Lai’s relationship with the Chinese government broke down after he ventured into the media business. He resigned as the firm’s chairman in 1994 after Giordano’s Beijing branch was shut down by the government for business licencing breaches. Since then Lai, China Resources and Tiger Global have all substantially reduced their stakes in Giordano.

That’s meant that the shareholding structure has been increasingly fragmented, without a controlling investor for some time. In 2006 the company said Fast Retailing, the parent firm of Uniqlo, a Japanese giant, had sounded it out over a takeover proposal but the offer was quickly rebuffed by Giordano management.

By this stage, the brand’s trendy appeal had already begun to fade among younger Chinese, who were gravitating towards more fashionable international brands.

CTF Enterprise stoked widespread speculation it planned to buy Giordano in 2011, following the revelation that the privately-held investment firm had acquired a 14% stake. The Cheng family behind CTF, which also controls Hong Kong blue-chip property firm New World Development, has been upping its position in Giordano ever since. And last week it finally tabled a proposal to acquire the 75% of the fashion firm it doesn’t already own.

The deal could be worth as much as $326 million, with the Cheng family making clear that it’s not planning to delist Giordano nor force a change in the company’s management. A general offer, it said, had only been triggered because its recent investments in Giordano have touched a regulatory threshold that requires it to make a full takeover bid.

So why is CTF so interested in control at Giordano? Some analysts have raised the prospect that the Cheng family could find synergies between its retail network and that of Chow Tai Fook, its jewellery business. Minor shareholders, however may need more convincing to sell their holdings.

The second biggest shareholder today is stock market activist David Webb, who owns about 5%. According to him, the Cheng offer is far below ‘fair value’ and the bid is an attempt to preclude a more competitive process by allowing CTF to reach a controlling interest before the retail sector recovers from the Covid-19 pandemic.

“Management should invite competing offers. Let the action begin,” he demanded on Twitter.

Webb will be hoping that Giordano can attract a few rival bidders. Otherwise CTF is going to swoop on the company in an ‘everything must go’ moment that every bargain hunter dreams of.

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