[OT] ICG Hastily Exits Asia Internet -- Hutch (13) Reclaims Harbour (715)
Jun 21, 2001 - 14:30:30 HKT
QuamResearch
Run away! Run away! Yes, U.S. Internet powerhouse ICG is beating a retreat after bloodying its nose with a massive $1.037 billion loss last year, its first full year of public Internet operations in Asia following its local backdoor listing via former toy maker Harbour Ring, renamed ICG Asia, in April 2000. Shareholders cannot have been happy with ICG -- and Hutch, since Hutch happily went along with it -- considering Harbour Ring's unexciting but still profitable performance prior to the tech foray.
Currently, Hutch owns 13.4% of ICG Asia, down from 23% when Harbour Ring was still Harbour Ring. Dr. Luk Chung Lam, former controlling shareholder of the toy business, owns a combined direct and indirect 4% interest.
ICG directly owns 49% of ICG Asia, 2.75 billion shares, and is the 79% majority shareholder of a JV with Hutch which owns another 6% stake in ICG Asia, 338.1 million shares. ICG's total holdings are thus 3.018 billion shares, 53.8%. Hutch and Lam want them all.
Of course, a general offer will need to be made. It would be interesting if Hutch can get it at the desired price since it is not only below the NAV, but it is also significantly below the market price which the shares have shot up to today.
The Current State of Affairs
ICG currently owns 3.018 billion shares
Hutch currently owns 822 million shares
Dr. Luk currently owns / controls 244 million shares (via Reading, International Toys, and direct personal interests)
Public shareholding is 1.521 billion shares, 27% float
Total shares outstanding: 5.61 billion
The Transaction
Hutch will buy 2.082 billion of ICG's shares
Luk, via his Reading Investments holding company, will buy 936.4 million of ICG's shares
For the general offer, Reading Investments will acquire a maximum extra 66 million shares to have a maximum acquisition of 1 billion shares
ICG's stake will fall to zero
All warrants will be purchased
ICG Asia will become a subsidiary of Hutch
The Consideration
Pure cash.
ICG Asia shares -- 25 cents per share offer
ICG Asia warrants -- $1.00 per warrant
Market value of share offer -- $1.4 billion
How Cheap It Is ...
ICG Asia pre-announcement close: 46.5 cents
ICG Asia NAV per share: 38.7 cents
ICG Asian June 21 A.M. session closing price: 60 cents
If the prices are accepted as is, Hutch will pay a total of $900 million for the shares and warrants while Reading Investments will pay a maximum of $250 million.
ICG Asia's Future -- Back to Fun!
Hutch said that it is their intention that "ICG Asia will continue the existing core business of manufacturing and trading of toys, and property investments." Hutch MD Canning Fok in a press release said:
"... in view of the existing current market environment and outlook, HWL believes that it's more appropriate for ICG Asia to focus on existing toy and property businesses. While its property business would fit into Hutchison Whampoa's core business area, we also believe that there should be stable growth prospects in Asia's toy trading business. It is with this view that HWL decided to make the Offer."
The press release also said that after the deal is done, they will "conduct a review of its financial position and operations with a view to determining its strategy towards B2B business activities." The newspaper announcement, however, was a bit more blunt:
"The Offerors also consider that it would be in the interests of ICG Asia Shareholders if ICG Asia were to exit the B2B investments made to date to focus on its toy trading and property operations."
Conclusion:
This could be a great time to exit and cash in with the company's shares at such a premium to the NAV, and we rather imagine that Hutch would not be interested in having as a long-term investment a toy company as a subsidiary. Harbor Ring's sales in previous toy years were in the neighborhood of $1.5 billion per annum, but profit had been declining in the years prior to the takeover by ICG, from over $300 million in 1994 to $33 million in 1997. By 1999, profit had snuck back up to $64 million. At Hutch's price, they're valuing the 1999 core operations at 22x earnings, so they must be expected large bottom line increases, perhaps through sales of property.
Holding is a risk, but it could be interesting to see what Hutch's designs are, and we might even expect some quick action.
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