This case explores the corporate finance issues arising from the privatization of Li & Fung Limited (Li & Fung, prior stock code: 494.HK) in May 2020. A public announcement was made earlier in March of the same year, while its closing stock price surged by 88.0%, from HKD0.50 to HKD0.94, the following trading day. Such price movement reflected the market expectation of successful execution of the privatization proposal.
The case seeks to highlight the considerations of Li & Fung in deciding on privatization, from a corporate finance perspective. Through the case, students will grapple with the practical questions of how controlling shareholders of a listed company should balance their own interests and the interests of disinterested shareholders in the market in formulating a privatization deal.
There are always some signals that indicate a listed company may have a plan for privatization. Shareholders need to be alert to certain signals that may possibly indicate a good opportunity for speculation. Li & Fung is a good example for students interested in investment.
On completion of the case, students will be able to:
1. Assess the rationales and drawbacks for the senior management of a listed company to initiate privatization
2. Identify the traits of a corporation signaling privatization in order to exploit potential capital gains
3. Assess the appropriateness of the methods used for privatization