(Yicai Global) Dec.14 -- As China's liquor industry is undergoing some consolidation and witnesses boom in the market, Legend Holdings Corp. [HKG: 3396] eyes new collaborations in the sector. The application of A-share listed liquor firm Hebei Hengshui Laobaigan Liquor Co.'s [SHA:600559] acquisition of Fenglian Wine Holdings Ltd., a liquor segment under Legend Holdings, has been under the review by the China Securities Regulatory Commission, the country's top securities regulator.
Through this deal, Legend Holdings will get CNY492 million (USD74.4 million) in cash and 30,108,300 shares of Laobaigan. From the point of view of Legend Holdings, the consolidation of its liquor business and other listed liquor firms is a better choice.
As Legend Holdings Liquor segment operating platform, Fenglian Wine's major assets are its four holding companies, namely, Chengde Qianlongzui Wine Co., Anhui Wenwang Wine Co., Hunan Wuling Wine Co. and Kongfujia Wine Co., through which it carries out liquor production and sales business.
Legend Holdings has developed into a large conglomerate of industries and investments in five areas, including information technology, financial services, agriculture and food. Fenglian Wine, the agriculture and food segment of Legend Holdings is run by Joyvio Group, a wholly-owned subsidiary of Legend Holdings. Joyvio Group holds 79.71 percent stake in Fenglian Wine.
When Legend Holdings entered liquor industry through mergers and acquisitions, it became a hot topic in the market. In the process, Fenglian Wine suffered a large loss. In 2015, Fenglian Wine's net profit attributable to shareholders of the parent company recorded a loss of CNY70.8 million, the company's financial statement showed. Later, through the optimization of capital structure and the recovery of the industry, Fenglian Wine gradually turned a profit with net profit attributable to shareholders of parent company in 2016 and 2017 at CNY16.5 million and CNY69.6 million respectively.
The two parties agreed a purchase price of CNY1.39 billion for Fenglian Wine, against the backdrop of its net assets at CNY487 million, representing a premium of about 188 percent.
However, this transaction does not mean that Joyvio Group sells Fenglian Wine, an official at Legend Holdings told Yicai Global. Per Laobaigan's restructuring plan, Fenglian Wine will become a wholly-owned subsidiary of Laobaigan after completion of the deal and Joyvio Group will get some stake in Laobaigan. Legend Holdings holds no more than 6.33 percent of Laobaigan's shares through Joyvio Group.
"Joyvio Group will become Laobaigan's second largest shareholder after the deal is completed. The cooperation between the two parties is based on promising future prospects and huge M & A opportunities in China's liquor industry," the company said.
Under the reorganization plan, Joyvio Group and other related shareholders have also made a performance commitment, promising Fenglian Wine's combined total net profit will reach CNY184 million from 2017 to 2019.