No2 shareholder wants at least 50pc premium A major shareholder in apparel firm Giordano International, which has been the subject of recent takeover speculation, is interested in selling its stake if it receives an offer at least 50 per cent above the current share price. Harris Associates, a US-based fund manager and the second-biggest shareholder in Giordano with a 14.08 per cent stake, is not happy with the Hong Kong-listed company's recent earnings and says the dividends paid out have been too small. Three global retail giants - Esprit, Spanish retailer Zara and Tokyo-listed Uniqlo operator Fast Retailing - have been considering taking a substantial stake in Giordano, one of Asia's largest clothing chains. Analysts said Giordano, which has an extensive distribution network on the mainland, is vulnerable to a takeover because its top three shareholders have a combined stake of 34.37 per cent. Giordano founder Jimmy Lai Chee-ying resigned as chairman in 1994 and sold his 27 per cent stake in 1996, leaving Giordano without a key shareholder. The management now holds less than 3 per cent. David Herro, chief investment officer of international equities company Harris Associates, said his company would be interested in disposing of its stake in Giordano at a premium of at least 50 per cent of the current share price. Giordano shares dropped 1.05 per cent on Friday to close at HK$3.77. 'Sales are lagging and margins are contracting,' Mr Herro said. He also complained of Giordano's 'capital allocation', saying that it should 'distribute more cash to shareholders'. 'There is excess cash in the balance sheet. We would like to see a net cash position, but with a smaller amount,' he said. Mr Herro said he had communicated his concerns to Giordano's management but was told the cash 'may be needed for other uses'. Giordano spokesman William Yue said it had no comment on Harris Associates' concerns. Mr Herro's comments came despite Giordano paying out HK$395 million in cash dividends in May for the last financial year. As at the end of December, Giordano had HK$665 million cash in hand, compared with HK$827 million a year earlier. Because of a one-off tax expense imposed by the mainland government, Giordano's net income slumped to HK$205 million last year, compared with HK$406 million in 2005. Sales declined 0.9 per cent to HK$4.37 billion. Earnings per share amounted to 13.8 HK cents, down from 27.5 HK cents in 2005, but the company kept total dividends unchanged at 26.5 HK cents a share, resulting in a payout ratio of 192 per cent. The gross margin fell one percentage point to 49.8 per cent. Fast Retailing announced its intention in August last year to buy a stake in Giordano but changed its mind a month later following a surge in the retailer's share price. But sources said the Japanese retailer had not abandoned its quest for a stake in Giordano. Aberdeen Asset Management, which holds 14.73 per cent in Giordano, declined to comment.