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Peter Fuhrman
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Chairman, Founder and Chief Executive Officer at China First Capital (www.chinafirstcapital.com) , China-based international investment bank and advisory firm for private capital markets and M&A transactions. See Linkedin profile here: cn.linkedin.com/in/peterfuhrman/ China First Capital... More
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China Private Equity, by China First Capital
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  • WH Group / Smithfield Foods Failed IPO. Read Chinese-Language Commentary In Forbes China.万洲国际止步IPO:华尔街券商陷入昂贵窘地

    www.forbeschina.com/review/201405/003280...

    万洲国际止步IPO:华尔街券商陷入昂贵窘地

    今天,香港和华尔街会有很多金融精英们生着闷气,难堪得不想抬头见人。究其原因:一个疯狂的IPO交易--由一群大牌投资银行联手打造,摩根士丹利领头,还有数家大型中国及亚洲的私募股权公司参与其中,包括中国的鼎晖和新加坡的淡马锡控股--没能找到足够投资者。终究,投资银行家们没能点石成金。万洲集团的首次公开招股计划已宣告中止。

    我们先回顾一下这个交易的背景。万洲国际前身为双汇国际,这是一个由银行和私募股权公司创建的、注册在开曼群岛的公司,持有去年"超级"杠杆收购来的美国猪肉生产商史密斯菲尔德食品公司的资产。万洲国际也是从事中国境内猪肉加工业务的上市公司河南双汇投资发展股份有限公司(下称双汇发展)的控股股东。而去年"双汇并购史密斯菲尔德"的交易主体正是双汇国际,该交易并没有直接涉及到双汇发展与史密斯菲尔德之间的股权转换,因此我们不应该将其看作是双汇发展并购史密斯菲尔德,而应该是双汇发展的大股东万洲国际(彼时为"双汇国际")对史密斯菲尔德进行杠杆收购式的私有化。

    作为该项交易中的买方,双汇国际的股东中除了有双汇发展的管理层,还有鼎晖、高盛、淡马锡、新天域等PE巨头。该交易有70亿美元来自于银行贷款,其中双汇国际从中国银行牵头组成的银团获取了近40亿美元的并购贷款,而双汇国际的股东从自己腰包掏出的资金量极少,此交易不失为史上罕见的超级杠杆收购。

    一年前,我是为数不多的质疑这桩交易的逻辑和经济效益的声音, 您可以点击这里阅读我原来的文章。 当时围绕这桩交易几乎是一片赞扬之声和对美好未来的展望,主流财经媒体大体上都持赞同意见,对摩根士丹利、鼎晖等人提供的故事照单全收。在过去的几个月里,这桩现在已经"暂时"失败的IPO进入实施阶段,媒体也是按部就班地跟进报道,并没有就这个交易一些明显的薄弱点提出有洞察力的质问-- 高负债,估值偏高,以及其"走偏"的公司架构(这笔交易看上去像是中国企业收购了美国最大的猪肉生产商,而实质并非如此)。

    我在这个交易中没有任何关联利益,因为我和我的公司从来没有为任何当事方提供过服务,我也没任何其中所涉及公司的股份。我只是读了收购交易时他们递交SEC的申请文件后,无法忍受这有些痴人说梦的说辞,这些大机构像是在赌定他们能将在纽约花一美元买的猪碎肉香肠包装成精品猪里脊,然后以5美元的高价卖给香港的投资者和机构。

    换句话说,当时任何一个看了SEC文件的人都会认同这整个事情海市蜃楼一般,是建立在一个非常不稳固且毫无根据的假设和"蓝图"上,史密斯菲尔德惨淡的运营状况和迷茫的发展前景更是让人笑不出来。但是,我们一遍又一遍听到的(现在看来无疑是和实际情况不符的)是 "中国迄今对一家美国公司完成的最大的收购交易","美国最大的猪肉生产商和其在世界上最大的猪肉市场对手之间的合并。"

    摩根士丹利,鼎晖,淡马锡和其他参与者似乎都有点太乐观了。原来的史密斯菲尔德"退市"交易去年刚刚通过,他们比原计划更快想要让公司重新在香港上市。如果他们成功了,意味着投资银行家们将得到巨额交易费,根据交易股价,PE投资也能得到丰厚的回报,这其中大部分PE已持有双汇发展的股份超过七年了。但是,恐怕有些"刻意没有被提及"的因素才真真是万洲国际如此急于上市的最强推动力。

    比如说,高昂的利息支付压力和还本压力。万洲国际从银团借了40多亿美元,就算以4%的综合利率计算,每年的利息就将近2亿美元。史密斯菲尔德退市之前的一个整财年(2012年4月底至2013年4月底)的净利润只有1.8亿美元,而最近一年受到"猪瘟"等突发状况影响,史密斯菲尔德的状况只会是比之前更糟糕。双汇发展2014年初进行了"公司历史上派现额最高的一次"分红,每10股派现金14.5元,万洲国际作为双汇发展大股东持有13.26亿股,分红所得现金数额应该不菲,给银团的利息支付尚可维持,但偿还本金恐怕就不大现实了。因此,万洲国际急于要通过IPO缓解其"火烧眉毛"的资金压力。

    上周首先传来消息,由于在路演时遭遇"冷场",万洲国际想要削减60%的IPO的规模。然后IPO突然在香港时间周二晚宣布中止。另外一个从来没有得到过合理回答的问题是为什么万洲国际里面的PE机构没有在中国股市上卖掉他们持有的双汇股份,而是自其上市以来一直持有,也没有退出?

    这是不寻常的,特别是双汇的股价已经远高于鼎晖当初的买入价。我那时还没在中国工作,但我知道那个初始的投资并没有得到社会公众的赞美和奖赏。2006年, PE机构提供资金协助企业管理层私有化当时仍为国有的双汇,几乎就在同时,说这笔交易造成国有资产流失的言论开始流传,因为与管理层绑定并且互相绑定,大家须要同进同退的架构模式,使其中的PE机构们没有办法自由地选择时点通过正常的股市渠道退出。因此只能在香港"另起炉灶",采用"曲线救国"的方式实现其所持双汇发展的股票的价值。这与去年香港上市的海螺创业的出发点和实现路径异曲同工。

    从行业整合角度来说,收购史密斯菲尔德的故事也并不是童话般完美。参与的PE机构都没有在美国经营猪肉生意的经验或知识。事实上,他们几乎没有在美国经营任何生意的经验。而现在双汇中国管理层,要同时经营双汇发展和其陷入困境的美国表弟,同时面对美国和中国两个大国的严格食品监管和商业监管,同样对如何在美国养猪卖猪肉几乎一无所知。而在美国养猪卖猪肉以前是,现在是,未来也将继续是史密斯菲尔德的主要业务,出口猪肉到中国可能会是其一个美好的业务点缀,但是在可预见的未来并不会成为其业务基石。

    如何,何时以及为什么这些美国资产可以在亚洲挂牌出售恐怕现在对参与其中的金融机构也是亟需解决的谜团了,包括当时为收购提供数十亿美元融资的中国银行,以及整个收购交易的操盘手摩根士丹利。所以现在才有了PE机构的这种愁闷场面,他们跟其合作伙伴一起,试图将他们对双汇的初始投资从"历史遗留问题"造成的流动性不足中解救出来,却没料到在这失败了的IPO上花费了更多钱。

    万洲国际的IPO失败也成为其他PE投资的、正等待在香港重新上市的私有化交易的一记警钟。 (读这里这里,以及这里)史密斯菲尔德,虽然不是什么特别了不起的超级明星企业,但从市场份额和公司盈利能力层面,却无疑已经是那些从美国"私有化"退市并计划通过IPO出售给香港投资人的中国企业中的一颗璀璨明珠了。

    对于拥有万洲国际的PE财团,他们梦想了整个"先动用70亿美元在美国收购然后转到香港IPO"的计划,又为这个失败的IPO花了LP们至少1,500万美元用在律师、保荐及审计费上。即使他们未来再尝试IPO,这个"前期花费"也只会有增无减。这是有史以来被渲染的最夸张的IPO,有14个投资银行被授权包销(此次IPO的银行不仅包括摩根士丹利,也有中信证券,高盛,瑞银,巴克莱银行,瑞士信贷,摩根大通等金光灿灿的名字)。所有昂贵的火力集中出击,结果:史上最贵的IPO哑弹。

    相比之下,现在喜大普奔的就是去年以31%溢价出售史密斯菲尔德股份给万洲国际的美国股东们。这当然抵消不了多少美国与中国已达到3180亿美元新高的贸易逆差。但是,这些美国投资者现在可以满足地知悉,他们得到了比这些亚洲和华尔街资本大鳄们好得多的结果。

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 05 5:22 AM | Link | Comment!
  • Pork Chopped. Why Did Hog Giant's WH Group IPO Fail To Entice Investors? -- Week In China

    -Pork choppedWhy did hog giant's IPO fail to entice investors?

    May 2, 2014 (WiC 235)

    -

    During the world's biggest probate dispute a few years ago, a fascinated audience learned that Nina Wang, the late chairwoman of Hong Kong real estate developer Chinachem, paid $270 million to her feng shui adviser (and lover) to dig lucky holes. As many as 80 of them were dug around Wang's properties to improve her fortune.

    One of these holes - about three metres wide and nine metres deep, according to the China Entrepreneur magazine - was burrowed outside a meat processing plant in China.

    Why so? Chinachem was the first foreign investor brought in by Shuanghui bosses in 1994 to help the abattoir expand. Wang's capital would jumpstart the firm's extraordinary transformation from a state-owned factory in Henan's Luohe city into China's biggest (and privately-held) pork producer.

    Seeing Shuanghui's potential, Wang offered to acquire its trademark and then to buy a majority stake for HK$300 million ($38 million). Both proposals were rejected outright by Shuanghui's chairman Wan Long (see WiC201 for a profile of the man known locally as the 'Steve Jobs of Chinese butchery'). His rationale was that he wanted to "make full use of foreign capital, but not be controlled by it". Despite never owning a majority stake in the hog firm, he insisted on running the company his own way.

    Two decades have passed since Wan first courted Nina Wang's cash and in that time a range of new investors have bought into the company. Last year they helped Shuanghui to acquire American hog producer Smithfield for $7.1 billion (including debt) and in January the firm was renamed WH Group, ahead of a multi-billion dollar Hong Kong listing. But embarrassingly the IPO was pulled this week, as plans for the flotation went belly-up.

    Not bringing home the bacon…

    When WH applied to list on Hong Kong's stock exchange in January, the firm talked up the prospect of launching the city's biggest IPO since 2010. It kicked off the investor roadshow early last month intending to raise up to $5.3 billion. Four fifths of the total was to be used to help WH repay loans taken to finance the Smithfield takeover, with bankers setting the price between HK$8 and HK$11.25 a share. This was "an unusually wide indicative range" according to Reuters, but also a recognition of the uncertain outlook in the Hong Kong stockmarket.

    A few weeks later, the 29 banks hired to promote the IPO (a record) returned with lukewarm orders. WH was forced to cleave the offer by more than half. Excluding the greenshoe allotment, the new plan was dramatically less ambitious, and looked to raise between $1.34 billion and $1.88 billion. To boost investor confidence, existing owners also dropped plans to sell some of their own shares in the listing. WH's trading debut was pushed back by a week to May 8.

    But investors remained unenthused. Blaming "deteriorating market conditions and recent excessive market volatility" (the prefferred explanation for most failed IPOs), WH shelved its IPO on Tuesday.

    "The world's largest pork company has gone from Easter ham to meagre spare rib," the Wall Street Journal quipped.

    Were rough market conditions to blame?

    The failed deal was another blow for bankers in Hong Kong's equity capital markets, who have watched the planned IPO of Hutchison's giant retail arm AS Watson slip away and have seen Alibaba Group opt to go to market in New York instead.

    Volatile markets may have contributed to WH's decision to postpone the listing. Hong Kong's Hang Seng index dropped 4.5% between the deal's formal launch on April 10 and its eventual withdrawal on April 29, according to the South China Morning Post. Other IPOs haven't been faring well recently. Japanese hotel operator Seibu Holdings and Chinese internet firm Sina Weibo both pared back share sales last month, while the Financial Times notes that concerns about China's slowing economy have depressed interest in Chinese assets more generally.

    Nevertheless, investors were anxious about WH's investment story too and specifically whether the company's valuation was too high.

    One of the selling points of the original Shuanghui takeover of Smithfield was that it married a reputable American brand with a company that wanted to adapt best practices in product quality and food safety in China. But if one longer term goal was to improve the reputation of Chinese pork - and boost confidence among the country's jaded consumers - the more immediate business logic was to sell Smithfield's lower-cost meat into China, where prices at the premium end of the market are typically higher.

    "We plan to leverage our US brands, raw materials and technology, our distribution and marketing capabilities in China and our combined strength in research and development to expand our range of American-style premium packaged meats products offerings in China," the company said in its prospectus. "We expect [this] to positively affect our turnover and profitability."

    In recent months this strategy has faced headwinds, with prices going - from the pork giant's perspective - in the wrong direction. American pig farmers are struggling with a porcine virus that has wiped out more than 10% of hog stocks. This has sent US pork to new highs, meaning it's no longer so low-cost. In contrast, Xinhua notes that pork prices in many Chinese cities have fallen to their lowest levels in five years. As such, the commercial case for exporting US pork to China isn't as strong. So fund managers have needed more convincing of the value of the newly combined Shuanghui and Smithfield businesses.

    So WH's valuation was too high?

    Bloomberg said WH was prepared to sell its shares towards the bottom of the marketed price range, which equates to a valuation of 15 times estimated 2014 earnings.

    At first glance that doesn't look too demanding. Henan Shuanghui Investment, the Chinese unit of WH Group that is listed in Shenzhen, carries a market capitalisation of Rmb78 billion ($12.6 billion), or 20 times its 2013 net profit. Hormel, a Minnesota-based food firm that produces Spam luncheon meat (and is a key competitor for WH's American pork business) trades at a price-to-earnings ratio of 23.

    Hence China Business Journal concludes that WH priced itself as "not too high and not too low" among peers, especially if the company can generate genuine synergies between its China operation and its newly acquired American unit.

    But an alternate view is that these synergies aren't immediately obvious and that the new business model has hardly been tested (the Smithfield deal closed last September and exports to China didn't start until the beginning of this year). The criticism is that WH hasn't done much more than put Shuanghui Investment and Smithfield together into a holding vehicle, but is now asking for a valuation greater than the sum of the two parts. "Even at the bottom of the range, the IPO implies a valuation for Smithfield 21% above the price WH Group paid for the US pork producer barely eight months ago," notes Reuters Breakingviews. (And let's not forget, Smithfield was purchased at a 30% premium to its market price at the time.)

    Or as one banker put it to the FT: "It's like buying a house, ripping out the bathrooms and kitchen and trying to flip it for a premium six months later."

    CBN agreed that investors have the right to be wary: "The market simply has not had time to judge if there is meaningful synergy coming out of WH's units. Nor is there a single signal that WH has the ability to properly manage an American firm."

    Why did WH want to IPO so fast?

    This question brings us back to Shuanghui's transformation from a state-owned enterprise to a privately-held firm. In April 2006 a consortium including Goldman Sachs and Chinese private equity funds CDH and New Horizon paid about $250 million to buy out the city government's stake in Shuanghui.

    The leveraged buyout was an unusual example of a Chinese national brand (and market leader) being snapped up by foreign buyers. Shuanghui was stripped of its SOE status, with majority ownership passing to private and foreign investors.

    Century Weekly suggested last month that most of these Shuanghui shareholders "have waited patiently for at least eight years to exit". Perhaps running low on their reserves of restraint, they then introduced the Smithfield bid last year to great fanfare as the largest takeover yet of a US company by a Chinese firm.

    But as Peter Fuhrman, chairman of China First Capital, a boutique investment bank, told WiC at the time, this wasn't really the case. In fact the bid for Smithfield was a leveraged buyout by a company based in the Cayman Islands, not a Chinese one. And its main purpose was to facilitate a future sale by Shuanghui's longstanding investors.

    How so? WH's set-up is complex: the IPO prospectus features an ownership chart containing WH Group, Shuanghui Group and Shuanghui Investment (not to mention several dozen joint ventures and Smithfield itself). One of these entities is listed in Shenzhen, but the investor group has been looking for other ways to cash out. A key motivation in last year's dealmaking was that they thought they had found an alternative route via a Hong Kong IPO.

    And less than a year after the Smithfield bid, WH made its move, not least because it needs to reduce some of the debt incurred in buying its new American business.

    But many market watchers think it looked too hasty. "They rushed into an IPO and didn't spend time to actually create the synergy between the US and Chinese business," one fund manager in Hong Kong complained to FinanceAsia this week. "They wanted to float the stock to fund the acquisition and also let the private equity firms exit. But if WH Group is good, then ride with me. Why should I buy when you are selling?"

    Fuhrman's view is much more withering: "I just couldn't get over, in reading the SEC documents at the time of the takeover, the brazenness of it, the chutzpah, that these big institutions seemed to be betting they could repackage a pound of sausages bought in New York for $1 as pork fillet and sell it for $5 to investors in Hong Kong."

    And what of the boss? Wan Long and another director Yang Zhijun pocketed almost $600 million in share options between them last year after the Smithfield bid went through. (The move pushed WH into a loss in 2013.) The size of the compensation package is said to have also deterred some fund managers.

    What next for WH?

    Any attempt to resurrect the offering will have to wait until after its first-half results, meaning a possible return to the market in September at the earliest. There have been reports that the deal is more likely be postponed until next year. CDH, the company's single largest shareholder, told the Wall Street Journal that it refuses to sell its WH shares cheaply. "We have a strong belief in the business' fundamentals and its long term value," a spokesperson insisted.

    But China Business Journal says that WH now needs to focus on convincing investors that it has a good story to tell, including providing a clearer integration plan for Smithfield and Shuanghui's operations. The pressure will also increase to find alternative ways to retire some of the debt taken on to finance the Smithfield acquisition. Reports suggest that early refinancing was expected to reduce debt repayments by around $155 million on an annualised basis - or about 5% of last year's profit.

    WH may also use the delay to rethink how it goes to market next time, with the South China Morning Post reporting that senior executives have been blaming the banks for the breakdown. "Some of them were too confident, and even a bit arrogant, when they tried to price the deal and coordinate with each other," the source told the newspaper.

    Then again, the banks will be irked by the expenses inccurred on a deal that didn't happen. And in retrospect it looks to have been a flawed decision to mandate 29 of them. As WH has learned, it diffused responsibility and may have disincentivised some of the participants.

    Indeed, another comment on the situation is that the only winners from this IPO were the airlines and hotels that were used as part of the roadshow process.

    May 02 6:58 AM | Link | Comment!
  • Smithfield Hong Kong IPO Goes Belly Up -- A Refresher Course In A Crazy LBO I Castigated Last Year

    Read the Wall Street Journal Report:

    online.wsj.com/news/articles/SB100014240...?

    Read my article from last year here on Seeking Alpha:

    seekingalpha.com/article/1476501-smithfi...

    Apr 29 9:28 AM | Link | Comment!
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