Morningstar | Without Consolidated Financials, Amer's Post-Acquisition Performance Is Set To Be Opaque
Details coming out of narrow-moat Anta’s official tender offer to acquire Amer are of little surprise. As previously rumored, both Tencent and Chip Wilson will each take up stakes in the Anta-led buyout consortium. With Amer’s board of directors unanimously recommending the deal, the offer will be presented to shareholders for approval. Given the 39% premium, Anta and its partners are paying; we continue to think the deal is more likely than not to go through. Upon Amer shareholders' approval, Anta management expects another three to nine months for the deal to close. We slightly adjust our model to reflect the minor changes in timing and financing terms but retain our HKD 55 fair value estimate on the company.We find the most noteworthy part of the announcement to be that, despite having majority control, Anta is not planning to consolidate Amer’s financial statements into its own immediately. While such accounting treatment does not have an impact on our valuation for the company, it means Amer’s financial performance will remain opaque at least for the beginning years following the acquisition.
Regarding post-acquisition strategy, Anta’s CEO mentioned that he would be aiming at the long-term growth potential of Amer’s brands, as opposed to the strategy deployed by Amer’s current short-term focused and financially conservative board of directors. Again, China will be the key region to look after, and Solomon and Arc’teryx will be the leading brands driving future growth. We expect Anta to retain the majority of Amer’s current management in their positions while implementing more incentive plans that are linked to the long-term success of Amer brands.
On the financial side of things, Anta will control close to a 58% stake in Amer, versus the 51% we previously assumed. Anta is also set to pick up around CNY 6 billion in new debts on its balance sheet at around 2% interest rate. We think Anta’s dividend payout ratio will dip to an average of 40% from 2019 to 2023, before recovering back to 70% once the loan is paid off.
ANTA Sports Products is principally engaged in the manufacturing, trading and distribution of sporting goods, including footwear, apparel and accessories, in the People's Republic of China. As of Dec 31 2014, there were 7,662 ANTA Stores, 1,228 Kids sportswear series stores and 519 FILA stores in China, Hong Kong and Macao.
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