ITOCHU Corporation seeks to privatize Descente, while the impact on Anta's domestic agency remains uncertain

On August 5th, ITOCHU Corporation (referred to as "ITOCHU") announced that its subsidiary BSInvestment will make a tender offer to acquire Descente at a price of 4,350 yen per share, which may trigger privatization and delisting.

The minimum number of shares to be tendered in this offer is 16.79 million shares, accounting for 22.22% of the total share capital.

Based on Descente's closing price of 3,365 yen per share on August 5th, ITOCHU's offer represents a premium of 29.27%, with a total transaction value of 182.6 billion yen (approximately 9 billion RMB).

ITOCHU believes that privatizing Descente will allow it to increase its limited management involvement and enhance corporate value through promoting cooperation.

Currently, ITOCHU holds 44.44% of Descente's shares, making it the largest shareholder; while the Ding family of ANTA Sports (2020.HK) holds 7.4%, making them the second largest shareholder.

Descente's business in China is operated by Descente (China) Co., Ltd., a joint venture established by ANTA, ITOCHU, and Descente, with ANTA holding 54%, Descente holding 40%, and ITOCHU holding 6%.

In recent years, Descente's performance in China has surged. According to Descente's financial report, its sales in China have grown rapidly from 14.3 billion yen in 2017 to 108.3 billion yen in 2023 (approximately 5.3 billion RMB), with a compound annual growth rate of 40.14% over six years.

From ANTA's financial report, it can be seen that Descente, KOLON Sports, and other brands continue to maintain high growth momentum. In 2023, excluding ANTA and FILA, other brands contributed revenue of 6.95 billion RMB, a year-on-year increase of 57.7%.

ITOCHU's move to privatize Descente may be aimed at reshaping its distribution channels. Descente's President Shimada stated that they will establish a direct-to-consumer (DTC) channel to face end consumers and generate more profits.

This is ANTA's channel strategy for operating Descente in China, establishing the brand by opening direct stores in high-end shopping malls to earn more profits.

Regarding Descente's business progress in the Chinese market, Descente mentioned that its sales in China have surpassed the Japanese and Korean markets, and they will continue to develop a good and tense relationship with their partner ANTA Group.

Although ANTA operates the Descente brand in China through direct stores, for Descente and ITOCHU, ANTA is still considered the brand's agent. As ANTA holds more than half of Descente China's shares, they naturally receive more profits.

For ambitious ITOCHU, whether they will use the privatization opportunity to redistribute the benefits of Descente in the Chinese market remains unknown.

It is worth noting that UNIQLO and MUJI, also from Japan, have expanded in China through direct operation models.

When asked by TradeWind01, both ANTA and Descente related parties stated that there is currently no further information available on whether the privatization will affect the joint venture company.

ITOCHU believes that after privatizing Descente, the management resources it possesses will further enable Descente to leverage ITOCHU's global business and network However, the plan still faces uncertainties at the moment. ITOCHU Corporation plans to start around early November, but at the same time, it is difficult to accurately predict the time required for procedures such as handling by relevant authorities