Lane Crawford Deal Proceeds

Minority shareholders today approved the privatisation of Lane Crawford by Wheelock. Shareholders represented by Webb-site.com abstained. We reveal the background to our thinking as the deal progressed.

Lane Crawford Deal Proceeds
12th July 1999

Lane Crawford minority shareholders at the separate Court Meetings for holders of "A" shares and "B" shares today approved the privatisation by Wheelock at the increased offer price of $12.50 per A-share and $1.25 per B-share. Shareholders represented by Webb-site.com abstained from voting, in line with our previous statement.

The increased offer followed our intervention, in which we stated our intention to block the original offer of $11.80 per A-share and $1.25 per B-share. As we hold over 10% of the public float in the B-shares, we were in a position to block the transaction.

A Difficult Decision

When the offer was increased, we had a difficult decision to make. On the one hand, we had achieved a small victory for minority shareholders in the form of a modest increase in the offer, but on the other, we were well aware that the offer was still short of the net asset value of around $16.54 per A-Share. In fact, with the recent increase in the HK market, Lane Crawford's blue chip investment portfolio increased in value. By 9-Jul-99, the last day prior to the meeting, we calculate that the NAV had risen to $17.00 per A-share. Nevertheless, the portfolio remained outside our control and we could not count on Lane Crawford to liquidate it. After all, most of it was bought at the top of the market in 1997, so their timing is not inspirational.

We continue to believe that listed companies (apart from those whose stated objective is to be an investment company, such as investment trusts) should not speculate in the stock market, but should focus on running their businesses. They should return surplus capital to shareholders and let them speculate instead if they so choose.

In the case of Lane Crawford, a key factor in our final decision was the poor history of the retail business even during the local economic boom of 1996-7. This was highlighted by the company itself in the Scheme Document - they lost $558m in retailing in the last five years alone. Come rain or shine, Lane Crawford has lost money under its current management.

No Precedent

Controllers of listed companies who are contemplating privatisation, please note: our decision on this transaction should not be taken as a guide to our future behaviour. We came close to blocking the increased offer for Lane Crawford, and would do so in future transactions if circumstances dictate. On this occasion, we decided the situation was sufficiently marginal to let other shareholders decide. Webb-site.com is a platform for better corporate and economic governance, and blocking the second proposal would have denied other shareholders (at least in the short term) the benefit of our actions. We are long term investors, and in a less marginal case we would have blocked the increased offer in the belief that there would be greater value down the road.

Congratulations, now get to work!

It would be petulant of us not to offer our congratulations to Wheelock on a successful transaction, so we do so. Minority shareholders of Wheelock must now hope that with 100% ownership of Lane Crawford, the management will re-focus their efforts and either bring in outside expertise in the form of fresh retail management or partners, or alternatively sell the retail business to someone who can extract full value from the 149-year old franchise.

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