Li & Fung pays US$128m for sleepwear designer
Export trading firm Li & Fung, making its second acquisition in less than two months, aims to benefit from United States youngsters' love of Barbie dolls and Spiderman after paying US$128 million for a portfolio of entertainment character licences for children's sleepwear in the world's biggest economy.
The group is to take over American Marketing Enterprises, which designs children's sleepwear under about 40 licences on labels such as Spiderman, Barbie and Disney Princess and sources the goods for chain stores that include Wal-Mart, Kohl's Target, Sears, Toy's 'R' Us and JC Penney.
The deal, which follows the US$30 million purchase in September of four clothing brands from Liz Claiborne, will help to improve the Hong Kong-based firm's profit margin, a key objective in its three-year plan between next year and 2010, according to analysts.
Li & Fung executive director Bruce Rockowitz yesterday said that the profit margin of American Marketing Enterprises was 'pretty high' at 10.64 per cent, based on its pre-tax profit of US$14.9 million and US$140 million net sales last year.
'We have not seen any impact of the economic slowdown on our business,' he said. 'More retailers source directly from us.'
Funding of the acquisition will partly come from the sales of a plate of properties in Hong Kong for HK$1.4 billion to Li & Fung (1937), a private company controlled by the Fung family. Listed Li & Fung will lease back the properties as part of its asset-light strategy. 'The sales will also provide us fresh funds for acquisitions in the pipeline,' Mr Rockowitz said. The property sales will generate a one-off gain of HK$449 million to the listed entity.
The acquisition of American Marketing Enterprises was positive to the listed firm's profitability but would inevitably raise its exposure to the US, where the economic outlook was uncertain, an analyst with a European brokerage said.
'The further expansion in sourcing of private label goods will help boost the group's profit margin next year, the beginning of the next three-year plan,' the analyst said, expecting it to achieve its target US$10 billion turnover this year, up from US$6.8 billion in 2006.
Li & Fung's revenue and profit would grow 35 per cent in the second half of this year, based on strong Christmas shipments, a JP Morgan research report estimated. A Thomson First Call poll showed a consensus of 38.5 per cent profit growth this year to HK$3.04 billion.