By  on August 15, 2008

Li & Fung may be Liz Claiborne Inc.’s solution to its “problem child” Mexx.

The Chinese supply chain giant is said to be in talks with Claiborne to not only take over sourcing for the $1 billion direct brand, but possibly to buy the whole Mexx business.

Sources speculated reports that Claiborne might sell Mexx were the reason Claiborne’s stock fully rebounded Thursday from a 12 percent drop Wednesday. With Claiborne focused on paying down debt and faced with what’s turning out to be a tough turnaround of Mexx’s troubled European business, selling the brand “would be one less headache,” as one source put it.

After posting a $23.2 million second-quarter loss Wednesday, in which Mexx’s longer-than-expected European turnaround played a large role, Claiborne said it was considering changing the Amsterdam-based retailer’s sourcing.

“We’re actively assessing options to improve our sourcing in terms of costs, speed and quality at Mexx,” Claiborne chief executive officer William L. McComb said in the company’s earnings call. “We are not prepared right now to get into any detail on the considerations there, but we see real savings and speed advantages that are achievable.”

McComb declined further comment Thursday, and Li & Fung USA president Rick Darling could not be reached.

Li & Fung has taken an interest in turning around Claiborne’s unprofitable brands before, buying four of its moderate-price labels last year — Tapemeasure, Emma James, JH Collectibles and Intuitions. The $11.85 billion sourcing company has plans to grow to $20 billion by 2010, and both managing supply chains for separately owned companies and full acquisitions are expected to be instrumental in that growth.

Besides Li & Fung, sources said Paul Charron’s new private equity firm, part of Fidus Partners, is also looking at acquiring Mexx. Charron declined comment.

Claiborne has said it is committed to Mexx, which makes up about a third of its volume, but it has been open to selling underperforming businesses to better focus on higher-performing segments.

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