Billionaire Guo Buys Fashion Brands as He Chases Buffett

Guo Guangchang has built Fosun Group on the Buffett model, with insurance operation that are helping provide cash for acquisitions around the globe.

Photographer: Ka Xiaoxi/Bloomberg Markets

From the 13th-floor conference room where he leads his senior executives in regular tai chi sessions, billionaire Guo Guangchang can look down on colonial-era buildings lining Shanghai’s historic waterfront boulevard, the Bund.

During the first half of the 20th century, these grand edifices housed the U.S., European and Japanese banks, trading houses and consulates that symbolized foreign financial and political dominance over an impoverished Qing dynasty. Today, it’s the slight, bespectacled Guo, in his headquarters atop an anonymous mid-rise office complex, who personifies China’s 21st-century global strength, Bloomberg Markets magazine will report in its October special issue on the 50 Most Influential people in global finance.

In the six years since the financial crisis humbled Wall Street and reduced the value of some U.S. and European assets, Chinese companies have splurged on $369 billion of acquisitions around the world. Some of the most-high-profile deals have been done by Guo, 47, a laborer’s son who studied philosophy on a government scholarship and rose to become China’s 10th-richest man, worth some $5.4 billion, according to the Bloomberg Billionaires Index.

Since 2010, Guo’s closely held conglomerate, Fosun Group, has spent more than $3.7 billion on foreign acquisitions. They include U.S. and European fashion labels, a Hollywood film studio and a famous skyscraper in New York’s financial district, One Chase Manhattan Plaza, bought last year from JPMorgan Chase & Co. for $725 million.

Force Field

“He’s carrying the banner for China in the world and, in the process, has become a business leader on a global scale,” says John W. Snow, the former U.S. Treasury secretary and current chairman of New York–based private investment firm Cerberus Capital Management LP.

Snow, who became a senior adviser to Fosun’s board in 2010, recalls being impressed with Guo a few years earlier at a dinner in Shanghai with a group of China’s leading entrepreneurs. “Even amid that select band of some of the most successful people in China, George was the first among equals,” Snow says, referring to Guo by the Anglicized name he uses outside of China. “He gives off a force field you cannot fail to detect.”

Biggest Purchase

Guo is far from the only Chinese entrepreneur striding the global stage. Wan Long’s WH Group Ltd. last year bought Smithfield Foods Inc., a U.S. pork producer, for $4.7 billion in the largest-ever foreign acquisition by a Chinese company not controlled by the state. Guo’s friend Jack Ma, founder of Alibaba Group Holding Ltd., this year bought stakes in messaging service TangoMe Inc. and ride-sharing app Lyft Inc. Alibaba is preparing to list shares on the New York Stock Exchange later this month in an initial public offering that could value the company at more than $160 billion.

Still, in terms of sheer diversity of deals, few can match Guo.

In his biggest purchase so far, he paid $1.36 billion in January for the insurance unit of Portugal’s Caixa Geral de Depositos SA, outbidding the London arm of private-equity firm Apollo Global Management LLC. And having acquired a 10 percent stake in Club Mediterranee SA in 2010, Guo this year tried to buy the rest of the French resort owner, which has operations in 40 countries. He withdrew his bid, made in partnership with Ardian, formerly known as AXA Private Equity, in mid-August, conceding to a rival $1 billion offer by Italian investor Andrea Bonomi for full control of the Paris-based company.

Guo says he’ll continue his global acquisition spree, with the aim of doubling the group’s assets to about $100 billion within five years.

Consumer Strategy

Unlike China’s state-owned enterprises, which traditionally have targeted mining, oil and gas assets when shopping overseas, Guo says his focus will continue to be directed toward acquiring foreign brands, technology and financial assets. He seeks, in particular, businesses that can cater to his country’s increasingly affluent consumers.

“Our goal is to upgrade the life of China’s middle class,” Guo says in Mandarin. “We all want to live better.” He’s sipping green tea in the conference room where he does his tai chi, which he describes as a good way to stay calm in a high-pressure work environment. “It puts you in a better mood,” he says.

In addition to working with Club Med, which in the past four years has opened four resorts in China, Guo has bought into and introduced to his homeland upscale U.S. fashion house St. John Knits Inc., Greek jewelry and handbag maker Folli Follie SA and Italian menswear company Raffaele Caruso SpA. (He wears $3,300 Caruso suits himself.)

Movie Studio

In June, Fosun also invested an undisclosed amount in Studio 8, a filmmaker founded by former Warner Bros. Pictures Inc. President Jeff Robinov.

Within China, Fosun is spending $1.6 billion to build a resort in Hainan province together with Dubai-based Kerzner International Holdings Ltd., developer of the Atlantis properties in the Bahamas and Dubai, formerly run by South African hotel magnate Sol Kerzner.

Guo also has partnered with Prudential Financial Inc., the second-biggest U.S. life insurer, and Carlyle Group LP, the Washington-based alternative-asset manager, to invest $700 million in private-equity ventures in fields such as health care and life insurance in China.

Acquiring insurers fits what Guo admiringly describes as Warren Buffett’s investment method. Premiums generated by the insurance operations will help provide long-term funding for his consumer-focused acquisitions, he says.

Shares Outperform

Whether investors believe Fosun resembles the original Buffett model, they’re betting it will work. Since Guo’s first foreign acquisition in June 2010, shares in his largest publicly traded unit, Hong Kong–listed Fosun International Ltd., have doubled compared with a 45 percent return in the benchmark Hang Seng Index.

The stock returned 33 percent this year through Sept. 8, after the company, which holds a mix of Guo’s assets ranging from retail operations to steelmaking, reported that 2013 profit rose by more than half to 7.85 billion yuan ($1.27 billion).

Most of Guo’s fortune comes from his 58 percent stake in privately held Fosun Holdings, which controls 46 percent of Fosun International and 22 percent of Shanghai Fosun Pharmaceutical Co., another unit traded in Hong Kong. His wealth has jumped by more than $1 billion so far this year, according to data compiled by Bloomberg.

Folli Follie

Guo has helped deliver even more spectacular returns to one of his business partners. Since Fosun acquired a 9.5 percent stake in Athens-based Folli Follie in May 2011, the retailer’s subsequent expansion in China contributed to its defying Greece’s economic woes. Folli Follie shares leapt 10-fold from a low in May 2012 to their peak in June of this year, in the process making company founder Dimitrios Koutsolioutsos, 71, a billionaire, according to Bloomberg data. Koutsolioutsos didn’t respond to requests for comment.

Such is Guo’s enthusiasm for international mergers and acquisitions that he’s trying to improve his limited English by watching TV series such as “Homeland” and “House of Cards.” “He’s driven, savvy and always moving forward fast,” says Bob Partridge, Hong Kong–based managing director for China transactions advisory at Ernst & Young.

Guo says he won’t move too fast. “You have to maintain the balance between fast growth and smooth growth,” he says. “It’s like driving a car and knowing when to balance the gas pedal and the brake.”

Deng’s Call

Navigating China’s rapidly changing command economy also requires frequent changes of direction -- as Guo has found in the past. Raised in a farming community 300 kilometers (190 miles) south of Shanghai, he studied hard enough to win a place at Shanghai’s prestigious Fudan University, deciding on a whim to study philosophy. After graduating, he worked for three years with the school’s Communist Youth League, in part doing research, before answering a call by former Chinese leader Deng Xiaoping in 1992 for entrepreneurially minded Chinese to join the capitalist world and start businesses.

Teaming up with a group of Fudan students, he launched Fosun with seed capital of 38,000 yuan to manufacture diagnostic kits for hepatitis. The venture ultimately made 100 million yuan in profit, Guo says.

By then, Guo’s spell at the youth league had given him valuable guanxi, or connections, within Shanghai’s political elite, says Albert Louie, founder of Hong Kong–based consulting firm A. Louie Associates. “He was a very shrewd and successful networker from an early age,” says Louie, who advises foreign investors in China.

Privatizations

Guo’s next big opportunity came in the early 2000s as China started privatizing state-owned companies. In 2002 and 2003, Fosun invested in Shanghai Yuyuan Tourist Mart Co., a jeweler and department store operator formerly controlled by the Shanghai city government, and Nanjing Steel Group, which had previously been owned by the Nanjing municipal government.

Also in 2003, Guo was appointed by the Communist Party as a delegate to the National People’s Congress, which is the country’s main legislative body, though it mostly approves decisions made at higher levels of the government.

“Being a member of the NPC helps one’s business without a doubt,” Partridge says. “It’s a major plus to have. In China, you want to make sure that you get the government support while buying overseas. It makes the process much easier.”

Guo, whose wife, Wang Jinyuan, is a well-known TV anchor in Shanghai, says he’s close to several of China’s most prominent tycoons, attending various entrepreneur clubs with Alibaba’s Ma and Liu Chuanzhi, co-founder of computer maker Lenovo Group Ltd.

Reinvention

“The billionaires circle is a lot smaller in China than, for example, in the U.S.,” Partridge says. “The small group of elites form close ties to create more value.”

Just now, Guo and his fellow billionaires see value in overseas deals, and his company is at the forefront. “In our history, we are constantly reinventing ourselves,” says Patrick Zhong, head of global investments at Fosun. “The change takes place because our whole country changes. The consumer changes, our environment changes, and they all change very fast.”

Guo has yet to build Fosun into anything like the size of the company he’s modeled it on. The combined market value of his two listed companies is only $16 billion, compared with the $341 billion of Buffett’s Berkshire Hathaway Inc. Guo says he isn’t disheartened. “It’s a long way to reach Buffett,” he says. “But my biggest advantage is, I’m younger and I know China better. Always dream big.”

Former Treasury Secretary Snow says Guo’s dreams may well become reality. “His best and most-exciting deals will be in the next five years,” Snow says. “He’s just hitting his stride. The Berkshire-like successes are on the horizon.”

Link to Bloomberg story: http://www.bloomberg.com/news/articles/2014-09-08/billionaire-guo-buys-fashion-brands-as-he-chases-buffett