UPDATE 3-Esprit founder doubles stake in ailing retailer, shares surge

Thu Nov 15, 2012 4:15am EST

* Founder's stake could rise to 10.33 pct

* Chairman says will consider founder for board

* Surprise move expected to provide short-term boost

* Esprit's shares hit highest level in six months (Adds chairman comments)

By Donny Kwok and Alison Leung

HONG KONG, Nov 15 (Reuters) - One of the founders of Esprit Holdings Ltd, Hong Kong billionaire Michael Ying, has doubled his stake in the ailing retailer to become its second-biggest shareholder, a surprise move that fuelled hopes he could help turn the company around.

Since stepping down as chairman six years ago, Ying has steadily been selling his shares as the fashion retailer's fortunes have soured. His decision to buy back into the company pushed shares 33 percent higher on Thursday, in their sharpest rise in three months.

The company's current chief later held out the possibility of a place on the board of directors, if Ying was interested.

Under Ying's leadership, the Europe-focused company rose to become the world's fifth-largest fashion retailer and had a market value of about $12 billion. It now has a market value of $2.7 billion and ranks 21st among global apparel retailers.

Esprit, which was borne out of a clothing sale from the back of a station wagon in San Francisco more than 40 years ago, is in the midst of a $2.3 billion restructuring that has been overshadowed by a management reshuffle and lingering uncertainty in the euro zone.

"It is short-term positive news to Esprit. Investors were caught by surprise by his move and that also recalled the glorious moments of the company when Ying was in charge," said Steve Chow, analyst at Kingsway Group Research.

Ying has increased his holding in Esprit to 10.33 percent, which includes a 5.99 percent stake and a rights issue, as of Nov. 7, according to a Hong Kong stock exchange filing. He bought 23.2 million shares at an average price of HK$11.669. Previously, Ying held 4.79 percent of the company.

Once the rights issue is exercised, he will become the second-largest shareholder after Lone Pine Capital LLC, which holds 10.88 percent.

Esprit chairman Raymond Or said on a conference call just before the market closed on Thursday that the company would consider Ying for the board if he was interested.

"Ying has not indicated his intentions to join the board at the moment. If Ying shows his intention, Esprit's board of directors will take it into consideration," Or said, adding the two are good friends and often play sport and dine together.

Analysts were quick to highlight that while the company performed strongly under Ying's leadership, the operating environment has changed considerably since then, particularly in Europe, where Esprit generates three-quarters of its sales.

"There was no fast-fashion player at that time. In terms of distribution channels, department stores and multi-brand apparel chains were the key channels. These channels are structurally much weaker now," Deutsche Bank said in a research report.

SHARES SURGE

Ying's share purchase comes just weeks after Esprit, which competes with Swedish clothing retailer Hennes & Mauritz AB and Spain's Inditex, tapped shareholders for up to $677 million to help finance its long-planned multi-billion dollar restructuring.

Shares of Esprit, which have climbed nearly 40 percent this year, rose to a six-month intraday high of HK$14.08 on Thursday. They closed up 22 percent at HK$12.96, beating a 1.6 percent drop in the benchmark index.

Ying has steadily sold his stake in the fashion chain in the past few years to less than 5 percent before the latest buy.

In April 2004, he held a 30.8 percent stake in the company, but over the next two years he sold HK$15.4 billion worth of shares, cutting his stake to 8.7 percent. In February 2010, he cut his holding to 1.79 percent after selling HK$4.67 billion worth of shares.

Ranked as the 14th richest person in Hong Kong by Forbes this year, Ying is married to Taiwanese actress Brigitte Lin.

Esprit, which also competes with and U.S. group GAP Inc and Japan's Fast Retailing Co Ltd, in August hired Jose Manuel Martínez Gutiérrez, an executive from Inditex, as its new chief executive in a bid to reassure investors.

The company had been a favourite of Hong Kong investors but has been hit hard in recent years by the euro zone debt crisis and is grappling to revive its brand, which it said last year had "lost its soul".

Esprit posted a net profit of HK$318 million ($41 million) for its second half ended in June, compared with a HK$2.06 billion loss a year earlier, based on Reuters' calculations.

That missed an average forecast of HK$455 million according to a survey of 10 analysts by Reuters. (Reporting by Donny Kwok and Alison Leung; Editing by Anne Marie Roantree and Jeremy Laurence)

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