Li & Fung in $450m Swire deal
Trading company Li & Fung is acquiring two merchandise-buying units from long-time rival Swire Pacific for $450 million in cash.
The company yesterday signed an agreement to acquire Swire & Maclaine and Camberley Enterprises by April next year.
The purchase will allow Li & Fung to strengthen its Asian foothold before Beijing opens the floodgates to foreign firms after entry to the World Trade Organisation.
It also will mark the end of a four-year search of acquisition targets since Li & Fung took over Dodwell, formerly Inchcape Buying Services.
Swire Pacific also announced yesterday the firm had sold its United States-based apparel-retailing arm The Eagle's Eye in a management buyout that will result in a loss of $385 million.
The loss arose largely from goodwill written off to profit and loss on disposal.
Analysts said with the purchase of Dodwell, Swire & Maclaine and Camberley, Li & Fung had eliminated the company's top rivals.
Under the agreement, the purchase price represented 9.4 times the combined profit of $47.7 million of Swire & Maclaine and Camberley in 1998, the latest figures available.
Swire & Maclaine sources consumer products such as clothing and handicrafts in Asia and exports them to the US and Europe.
Almost all the company's products, sourcing network and markets are the same as Li & Fung's.
Half of Swire & Maclaine's 12 Asian offices overlap with Li & Fung's, while 80 per cent of the companies' products are sold in the US and the remaining 20 per cent in Europe.
Li & Fung managing director William Fung Kwok-lun conceded the overlap.
'It's true that the acquisition of Swire & Maclaine will bring no breakthrough to our existing business in terms of markets and products,' he said.
'However, it cements our position as a global consumer product trading company,' Mr Fung said, adding Camberley's exposure to manufacturing fitted well with Li & Fung's expansion strategies.
He said Camberley's strength was its flexibility and production capacity for ladies sportswear, ready-to-wear fashion and home accessories by sub-contractors.
'We like this 'virtual manufacturing' concept,' he said.
'This is also the direction that Li & Fung is heading towards.' Mr Fung said the company would use its resources to improve Swire & Maclaine and Camberley's profits.
Li & Fung has a much bigger turnover than the two companies. Its turnover was $14.31 billion last year.
Turnover of Swire & Maclaine dropped 15.25 per cent to $2.35 billion last year from a year earlier and pro forma profit fell 15.89 per cent to $12.7 million.
Camberley's turnover slipped 8.67 per cent to $495 million last year, with profit increasing 31.57 per cent to $35 million.
'We hope to push the two companies' profit margin up to 3 per cent from less than 1 per cent in 1998,' Mr Fung said.
