LightInTheBox, Mengniu In New Foreign Tie-Ups
Leading domestic dairy company Mengniu (HKEx: 2319) and e-commerce company LightInTheBox (NYSE: LITB) are in the headlines with new foreign tie-ups, including a joint venture for the former and a modest acquisition for the latter. I personally find the Mengniu development more interesting and significant, as it marks the latest move in the company’s drive to become China’s leading dairy products maker and positions it for an eventual global expansion. But investors were much more excited by the LightInTheBox move, which sparked a major rally for the firm’s languishing shares.
Both developments underscore the growing importance that Chinese companies and their investors are placing on improving operations through tie-ups that bring foreign expertise. This kind of tie-up isn’t really new, since foreign joint ventures have been an important part of China’s corporate landscape since the country first embarked on its economic modernization in the 1980s. But this newer wave of partnerships is more focused than in the past, with key executives and more targeted partnerships playing a bigger role.
Let’s start with LightInTheBox, since news of its purchase of a US-based social e-commerce site called Ardor sparked a massive 20 percent jump in its shares in regular trade and another 7 percent after-hours. (company announcement; Chinese article) No financial information was given, which leads me to believe the purchase was probably relatively modest, valued at less than $30 million.
Instead, the more significant part of the deal appears to be LightInTheBox’s acquisition of Ardor’s top executives, including its CEO who will become the Chinese company’s new president. The announcement points out that Ardor CEO Mark Stabingas previously worked as a senior executive in the payments division for global e-commerce giant Amazon (Nasdaq: AMZN), and that the acquisition will give LightInTheBox its first offices in the US.
That’s important because unlike other Chinese e-commerce firms that sell to local consumers, LightInTheBox is developing a niche as a supplier of cheap Chinese goods to overseas buyers. The company’s shares initially soared after their IPO last June, but later tumbled after it reported disappointing quarterly results and outlook. Even after the latest 27 percent rally, the stock trades just slightly above its IPO price of $9.50. I’ve previously said that the LightInTheBox sell-off late last year was overblown, and suspect this latest jump could mark the start of a new rally for the shares as investors return to the stock.
Meantime, Mengniu has announced its own new foreign tie-up through its formation of a joint venture with US-based WhiteWave Foods (NYSE: WWAV). (company announcement) The deal will see the pair invest $85 million to build a China-based plant to manufacture some of WhiteWave’s specialty products, which include coffee creamers and plant-based foods and drinks. The deal didn’t have much impact on either company’s shares, which were both largely unchanged.
The joint venture is the latest in a string of foreign tie-ups for Mengniu, which is fast emerging as China’s leading dairy company as Beijing promotes consolidation of a sector that has been tainted by a series of food safety scandals over the last 5 years. Its growing stable of foreign partners include French dairy giant Danone (Paris: DANO), as well as US private equity giant Carlyle. (previous post)
Some might point out that Mengniu’s stock has already risen more than 50 percent over the last year, as investors bet on the company to become China’s leading dairy firm in the ongoing state-led consolidation. But I would argue there is room for further upside, as these new tie-ups could pave the way for Mengniu to not only consolidate its position at home but also move onto the global stage with a major acquisition in the next 3-5 years.
Bottom line: LightInTheBox and Mengniu shares could have more upside in the year ahead, as each strengthens its position through new foreign tie-ups.
Related posts:
