Esprit Holdings Ltd. (330) jumped in Hong Kong trading after former chairman Michael Ying doubled his stake, fueling speculation the billionaire will help turn around the retailer battling a sales slump.
Esprit climbed 22 percent in Hong Kong trading to HK$12.96, the most since Aug. 7, after surging as much as 33 percent. Ying raised his stake on Nov. 7 to 10.3 percent from 4.8 percent, according to filings on the Hong Kong stock exchange website.
Ying helped oversee Esprit’s global expansion and a sales surge during a 13-year tenure as chairman that ended in 2006. The Hong Kong-based clothier has missed estimates in the last five years, saying the brand has “lost its soul” as competitors such as Inditex SA (ITX)’s Zara drew customers away.
With a stake of more than 10 percent, Ying is able to call for a special general meeting and propose resolutions, Anne Ling, an analyst at Deutsche Bank AG in Hong Kong, wrote in a research note to clients.
“We believe investors’ initial view will be positive, offering ‘comfort’ as Esprit performed strongly under his leadership,” Ling wrote. “The market will anticipate Mr. Ying taking a more active role in the company.”
Ying, who is now Esprit’s second-largest shareholder, hasn’t signaled an intention to join the board, nor has the company “pro-actively” asked him to, Esprit Chairman Raymond Or said on a conference call today. The board would consider him if he wanted to participate, Or said.
Or said he has always been in contact with Ying and doesn’t know when the former chairman became a shareholder. The company welcomes anyone who makes a contribution to operations, he said, adding that the company sees the need to strengthen the board and could seek out independent directors.
Based on Esprit’s current market value of HK$25.1 billion, a 10.3 percent stake is worth about HK$2.6 billion, according to data compiled by Bloomberg.
The clothier was started in 1968, when Susie and Doug Tompkins sold clothes out of the back of a station wagon in San Francisco. Esprit Far East Group began operating in the 1970s when the couple met Ying, according to the company’s website.
During Ying’s tenure, Esprit’s sales surged 30-fold to HK$23.3 billion in the year ended June 2006 from HK$769.7 million in 1993, according to data compiled by Bloomberg. Revenue has dropped in three of the past four years on competition from clothing chains such as Hennes & Mauritz AB. (HMB)
Forbes estimates Ying’s net worth at $2.5 billion. The former chairman cut his stake after leaving the post, raising $160 million by selling 22.8 million shares in March 2010. He owned 93 million shares, or 4.8 percent, before the latest purchase.
“We have to monitor developments as to whether Mr. Ying will be a passive or active investor,” Deutsche Bank’s Ling said.
Ying was buying shares at the same time that Lone Pine Capital LLC cut its effective stake to 10.9 percent. It sold 62.5 million nil-paid rights shares in two transactions, on Nov. 7 and Nov. 9, according to a filing.
Separately, Easyknit International Holdings Ltd. (1218) said Nov. 13 that it bought 850,000 common shares and 1.1 million nil-paid rights shares of Esprit.
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