Aug 19, 2008
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CVC makes 'white knight' offer for Peace Mark-sources

Aug 19, 2008

By Joseph Chaney and Michael Flaherty

HONG KONG (Reuters) - Shares in watchmaker and retailer Peace Mark were suspended Monday after private equity firm CVC Asia Pacific made an indicative offer for shares in the company in what sources called a "white knight" bid.

Shares in Peace Mark--which has a market cap of $241 million and which sells watches for brands including Rolex, Omega, Rado and Tissot--saw volatile trading last week on heightened concerns of its debt load and other corporate governance issues.

Last Monday, the firm's shares plummeted as much as 73 percent, but on Friday, the stock pared earlier losses and soared 36 percent after a senior executive bought 2.1 million shares.

Peace Mark, which also runs the TimeZone chain and a joint venture with New York-based Tourneau, gave few details of the CVC offer in the company's share suspension notice to Hong Kong's stock exchange on Monday morning.

"It's positive, that's all we can say," Peace Mark spokeswoman Cherry Lai told Reuters on Monday. Shares in Peace Mark closed at HK$1.50 on Friday.


Two sources familiar with the matter told Reuters the CVC offer is more akin to a "white knight" bid than a majority buyout.

As a "white knight," CVC would be swooping in last minute with some kind of capital injection to rescue the company from a big blow to its shares following last week's drop.

CVC Asia Pacific Ltd is a unit of CVC Capital Partners, a London-based private equity firm, which has focused mainly on deals in Europe and Asia.

CVC last month took a 35 percent stake in Chinese printer and packager Hung Hing in a deal with HK$875 million. That deal came after Hung Hing's shares had dropped more than 50 percent in the last year.

CVC's current Asian investments in the retail sector include Minit Asia Pacific, a high-end engraving, watch and shoe repair business.

The high debt load of Peace Mark was a concern among investors that may have put pressure on the stock, fund managers and brokers said.

Analysts have also cited concerns about lack of clarity in the company's annual report, released late in July.

The company is in the process of raising $200 million through a three-year term loan for refinancing.

Chief Financial Officer Kevin Tsang said the company's debt was now below HK$4 billion ($512.8 million) after it recently paid off HK$200 million, and that Peace Mark would be cash flow positive this year.

Goldman Sachs retains a "buy" on the stock, claiming the "refinancing overhang" is a concern but that the stock is oversold.

"Based on independent checks on alternative financing options, meetings with senior management, and our stress testing on the company's bank covenants, we believe Peace Mark should be able to pull through, albeit at the expense of having to pay a higher interest rate on the refinanced debt," the investment bank said in report on Monday.

Cazenove has an 'outperform' rating on the stock, and UBS a 'neutral' rating.

(Editing by Anshuman Daga)

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