Privatisation tonic for Eu Yan Sang

The boss of Eu Yan Sang International was glad to shake off the pressures of running a listed company when the traditional Chinese medicine giant finally exited the local bourse last month.

But his decision to take the business private really came from a succession planning perspective, he told The Straits Times yesterday.

Chief executive Richard Eu, 69, was speaking to the media for the first time since Eu Yan Sang became a private company again.

He said: "As a family, you're under pressure to maintain this long-term shareholding. But with every generation, more beneficiaries come into being, so it is fragmented from generation to generation."

He added: "We wanted to find a way where we could institutionalise the family shareholding and, if we could find a long-term institutional shareholder to be partners with us, in the longer term there's a bit more stability."

Mr Eu has come close to losing control of the 137-year-old institution founded by his great-grandfather. In the 1990s, relatives in Hong Kong stunned the Singapore Eus by selling out to the Lum Chang group.

Fortunately, Lum Chang sold the company back to the family three years later.

Today, the family has a 23.8 per cent stake in Eu Yan Sang after launching a bid, alongside other private equity partners, to privatise the company at 60 cents a share in May.

More steps will be taken to institutionalise the family's shareholding, Mr Eu said.

Eu Yan Sang's delisting from the Singapore Exchange on Oct 7 marked the end of a 16-year journey for Mr Eu, who listed the company in July 2000 at 35 cents a share, or a market cap of about $100 million.

Based on the buyout price, Eu Yan Sang is now valued at $269 million.

Delisting also made sense as company shares were thinly traded. "It's a struggle because if you want to be listed, you also want your shares to be active. So if the shares are not active, then you question why you listed in the first place.

"We had a lot of bonus issues over the years. We increased our shares in issue by quite a large amount, hoping that shareholders would release some to the market, but it still wasn't enough."

He added: "Markets have a short-term mentality. People are looking for a story behind the stock, and looking forward to a quick profit. They can either buy or sell short. But in our case, it's just a slow and steady business."

To be sure, the company embarked on a plan to shed its reputation as a retail business and pivot into an innovative products business more than a year ago. But that could take years to execute, Mr Eu said.

The company posted a net loss of $13.5 million in the 12 months ended June 30, owing mainly to impairments taken, though revenues were also dented by slower business in Hong Kong.

Might Eu Yan Sang tap the capital markets again?

"It's possible that we would. Again it goes back to the size of the company. If your market cap is close to a billion dollars, you would have a bit more turnover. Companies go through a cycle and there are different phases to the cycle."

But that will be a story for another time. Mr Eu sees himself stepping down as CEO over the next couple of years. His eldest son, Richie, joined the company three years ago, but Mr Eu emphasised that the new shareholders - Tower Capital and a unit of Temasek Holdings - would also have a say in selecting the next CEO.

Meanwhile, he has other projects on his mind. The father of four who was whistling as he walked into the interview is contemplating releasing a second album of "rock and blues" songs. He is a singing CEO.

"The other day I had an offer. I said I'd do it, but I need corporates to underwrite it. It's as simple as that, because I do it for charity."

This article was first published on Nov 19, 2016.
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