The MOULIN Story Part One
Fall of Hong Kong firm is a shock to investors
By Donald Greenlees International Herald Tribune
THURSDAY, JULY 7, 2005
HONG KONG At the end of March, Cary Ma exuded success. As he sipped a drink in the opulent bar of the China Club in Hong Kong, he boasted of an optics business empire that spanned Asia and Europe and had just added a 378-store retail chain in the United States.
At 41, Ma, chief executive of Moulin Global Eyecare, had steered this family-owned manufacturer of spectacle frames and sunglasses based in Hong Kong into a global business. He had earned admiration and investment from an A-list of institutions. And he harbored big expansion plans. "It's a very exciting time for the company," he said.
But even as he spoke, the business was crumbing under him. Within weeks, banks had called in debts of 2.4 billion Hong Kong dollars, or $300 million, and the liquidators were sent in. Ma and his father, Ma Bo Kee, the company's founder and chairman, were arrested as the police began a fraud investigation.
The speed of Moulin's collapse has stunned investors. The company ranks as the third-biggest manufacturer of eyewear in the world, producing brands like Aigner, Longines, United Colors of Benetton, Revlon and Nikon at factories in China and the Czech Republic. After a spate of acquisitions, its distribution business, through Metzler International, reached across Europe and the United States.
In early March, Moulin had concluded its biggest deal. By buying a majority stake in Eye Care Centers of America, which owns retail outlets like EyeMasters and Visionworks, it had turned itself into a truly global eyewear business. Ma spoke of ambitions to create a 500-store chain in China, where it already had 58 stores.
"The reason why Moulin did the deal with Eye Care Centers of America was that it was a platform for more acquisition opportunities," Ma said in an interview at the time.
What went wrong at Moulin is under criminal investigation. The Commercial Crime Bureau of the Hong Kong police arrested Cary Ma, his father and three others from the company on Monday and seized documents from its offices in connection with the offense of "conspiracy to defraud," according to a police spokeswoman. Those arrested were released on bail Wednesday without charge.
The police investigation focuses on concerns raised by 30 creditors, led by HSBC Holdings, over accounting irregularities within the company that came to light when Deloitte Touche Tohmatsu, Moulin's auditor, resigned in April. It followed the departure of Ernst & Young as auditor in December.
But industry analysts say the roots of the company's demise actually date back several years. They say Moulin is a cautionary tale of what once was a solid family company - started by the elder Ma in a small Hong Kong workshop in 1960 - brought low by the grandiose ambitions of a new generation.
"They had the right, ambitious idea, but they may have needed to tie the loose ends together and I think in hindsight we are seeing maybe they didn't have that all together," said Marge Axelrad, editorial director at Jobson, a publisher that serves the U.S. optical industry. "They were very bold in what they were trying to do as a Chinese company in the most mature markets in optical: the United States and Europe."
She said other Chinese manufacturers should bear Moulin in mind as they strive to move from being low-cost suppliers to establishing their own brands.
In the mid 1990s, Moulin embarked on a rapid series of acquisitions in Europe to build its distribution network. Under a second generation of management, the company tried to make the leap from being a low-cost Chinese supplier of licensed brands to designing, making, distributing and retailing its own products worldwide.
Despite Moulin's claim to be the world's third-largest eyewear maker, it was a relative minnow compared with the industry leader, Italian-owed Luxottica, which owns the Ray-Ban brand, and another Italian company, Safilo, the No.2, which won the lucrative Giorgio Armani contract away from Luxottica in 2003.
In 2004, Luxottica had revenue of 3.2 billion, or $4 billion, from its retail and manufacturing business; for the same period, Moulin was on target for revenue of about $160 million.
But Cary Ma spoke publicly about taking on Luxottica, particularly in the $23 billion U.S. market. In 2004, Moulin lost a battle with Luxottica to acquire the largest optical retail chain in the United States, Cole National. Undeterred by the defeat, Moulin made a bid in partnership with Golden Gate Capital, a San Francisco-based private equity firm, for Eye Care Centers of America. Moulin paid $250 million for a 56 percent stake.
It might have been a deal too far. Moulin's problems began to show on April 18 when it requested a suspension of trading in its shares on the Hong Kong stock exchange. The company quickly started to unravel. It announced a change in auditors and a delay in its 2004 results.
Without published annual results, it canceled a 320 million dollar convertible bond sale intended to pay down debt on its U.S. acquisition. The suspension of share trading also put Moulin in breach of a loan agreement, and banks called in their debts. On June 23, it was put into provisional liquidation.
The speed of Moulin's fall caught investors by surprise. Ma, who boasted that the company's market capitalization had risen by a factor of nine since its 1993 listing in Hong Kong, had won the backing of institutions like J.P. Morgan Chase, Capital Group, Templeton Investments and Morgan Stanley.
According to Axelrad, the problems at Moulin appeared to exist well before the takeover of the U.S. retailer.
The company failed to consolidate the purchase of several European distributors from the late 1990s.
"They had a lot on their plate to digest with the distribution deals they had made prior to push for Cole and Eye Care Centers," she said. "It seems like they were moving very quickly for what they were attempting to accomplish."
Part 2 on next post
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