HONG KONG — Sourcing giant Li & Fung Ltd.’s shopping spree continues.
This story first appeared in the August 13, 2010 issue of WWD. Subscribe Today.
Just after confirming it had bought U.S.-based footwear maker Jimlar Corp. for an undisclosed sum, the company said Thursday it is launching a takeover bid for logistics and distribution firm Integrated Distribution Services Group Ltd., or IDS, in a deal valued at 7 billion Hong Kong dollars, or $901 million at current exchange.
Li & Fung also said Thursday it posted a 55 percent jump in first-half profits attributable to shareholders to 2.17 billion Hong Kong dollars, or $279.6 million. Sales for the six months ended June 30 rose 12 percent to 51.79 billion Hong Kong dollars, or $6.67 billion.
Speaking at a press conference, Bruce Rockowitz, president of Li & Fung, attributed the results to strong operating leverage and continued cost savings as well as its onshore business in the U.S., along with contributions from acquisitions and outsourcing deals.
Still he warned consumer spending has begun to slow over the past few weeks.
“The year started out very strong, but business has not been as robust for retailers over the past few weeks. This is not a double dip, but a slowdown, as consumers are still spending,” he said. “The U.S. is in the better stages of improvement compared to the [European Union]. Europe hit rock bottom about a month ago and things are only slowly starting to improve.”
He also cautioned that rising costs are an issue.
“Costs of goods will be inflationary, as countries that are traditionally producers are now becoming consumers. Pricing will continue to go up, but most of the retailers are accepting this, as they have no choice. It is not just the cost of production in China that is going up, it’s going up everywhere,” he said. “Retailers will need to figure out how to be more efficient with markdowns.”
Nonetheless, Li & Fung said it expects margins to continue to trend up the rest of the year and top-line growth to be driven both organically and by further acquisitions. The company said the cost base would be affected by some key buyouts and new outsourcing and licensing deals in the run-up to its new three-year plan.
Rockowitz said the company has a $1 billion war chest for acquisitions and said more deals are in the pipeline for next year. The firm has been on a shopping spree. Just last month, it unveiled a string of licensing deals and acquisitions, including a venture with Tommy and Andy Hilfiger’s Star Branding.
The executive said the IDS acquisition would give the company greater capabilities in China and Asia.
“IDS has an Asia-wide distribution network for [consumer goods] and health care products. If you look at the IDS client list, there is very little crossover with Li & Fung, so there is potential for lots of cross-selling,” he said. “This deal marks a prelude to a huge entry into the LF Asia platform that will complete the world network for the whole company. It will put Li & Fung in the very powerful position of being able to take brands and distribute them globally.”
Li & Fung is offering IDS shareholders 21 Hong Kong dollars, or $2.70, a share. Shareholders also can forgo the cash and swap each of their shares for 0.585 Li & Fung shares. Shares of both IDS and Li & Fung suspended trade on the Hong Kong stock exchange as of Tuesday, ahead of the announcement.
The Fung family, which owns 44.94 percent of IDS and 32.96 percent of parent company Li & Fung, already has undertaken the share alternative and will abstain from voting.
The transaction is expected to be complete by the fourth quarter of this year.
Separately, Li & Fung said Thursday it has acquired Jimlar, confirming a July report in WWD. Rockowitz declined to disclose the price of the acquisition, but financial sources told WWD in July that LF USA, the subsidiary of the company, was close to buying Jimlar for $450 million. Jimlar is a privately held firm that owns the Frye trademark and does business through licenses such as Coach and Calvin Klein. Rockowitz estimated that Jimlar will post annual sales of $540 million this year.
Jimlar will expand LF USA’s footwear platform, set up last year, as well as its accessories business, which already includes Rosetti Handbags and Accessories Ltd., Van Zeeland Inc. and Cipriani Accessories Inc. Jimlar co-presidents Jim and Larry Tarica and the senior management team are staying on and will report to Darling.
“The acquisition of Jimlar…is a significant step in expanding our presence and capabilities in the footwear business,” said Rick Darling, president of LF USA. “We have been actively looking at footwear opportunities and believe that Jimlar is at the top of the sector and will be a great fit. Their strong brand-management capabilities and portfolio of brands will significantly add to our overall accessory efforts.” Jimlar’s management team will stay in place.
Li & Fung also said Thursday it has bought China-based Kenas Furniture Group.