Mainland Headwear Holdings, a Hong Kong-listed hat maker, is selling as much as a 20 per cent stake to New Era Cap, an industry leader in the United States, as part of a deal that will also secure US$160 million worth of orders. The company said under the agreement, New Era would buy 16.8 million Mainland Headwear shares, or a 5.26 per cent stake, for 84.4 HK cents each and would have an option to buy 62.8 million shares more, or 19.74 per cent, at market prices over the next two years. 'Since we also have a solid and extensive retail network on the mainland, this partnership has the potential for future collaborations along the retail lines,' Mainland Headwear deputy chairman and managing director Pauline Ngan Po-ling said yesterday. The company would get at least US$5 million worth of orders from New Era next year, US$15 million in 2010 and US$17.5 million in 2011, Ms Ngan said. Mainland Headwear shares rose 6.59 per cent to close at 97 HK cents yesterday after trading resumed from suspension in the morning following the announcement of the deal during the midday break. 'Mainland Headwear can help us penetrate the retail market on the mainland,' said New Era chief executive Christopher Koch. 'We specialise in producing small-quantity and highly customised products in the US, but we have not been able to do that in the European market in the last five years. Mainland Headwear can help us in this way.' Mr Koch said the partnership also gave New Era an additional manufacturing capacity. New Era will appoint a member to Mainland Headwear's board. Last month, Mainland Headwear said first-half sales rose 16.5 per cent to HK$297 million from a year ago, while net profit fell 93.5 per cent to HK$1.8 million because of rising labour and raw material costs. 'We are indeed suffering from the unfavourable global economy,' said Ms Ngan. 'We dare not raise our selling price as customers are hesitating to give orders.' But Ms Ngan said the firm was financially sound with net cash of HK$150 million and no debt. She expected a 20 per cent year-on-year drop in Christmas orders this year, but the firm still planned to add 1,200 workers on the mainland to 4,000 next year, to meet rising demand. Mr Koch said New Era saw an increase in its Christmas orders as the weakening US economy had not affected sales of caps. 'With customer research we have seen in the US that retail items of US$50 or less do not seem to be heavily affected by the worsening economy,' he said. 'If you go to watch a baseball game, you can buy a jersey for US$200 or a cap for US$35. It's a big difference. People always seem to want the cap.' Producing more than 35 million caps a year, New Era is the exclusive maker and marketer of the official on-field cap worn by every Major League Baseball team and their Minor League affiliates. New Era has three factories in US with 1,700 employees worldwide.