Wal-Mart Supplier Li & Fung Boosts Acquisition War Chest to $1.15 Billion
Victor Fung, chairman of Li & Fung Ltd. and chairman of the International Chamber of Commerce (ICC), attends a news conference in Hong Kong. Photographer: Timothy O'Rourke/Bloomberg
Li & Fung Ltd., the biggest supplier to retailers including Wal-Mart Stores Inc. and Target Corp., increased its funds for acquisitions to about $1.15 billion with the sale of 10-year debt.
The supplier of consumer goods ranging from Tommy Hilfiger clothes and Kate Spade bags to furniture, cosmetics and toys said in a July 9 statement that it raised $350 million selling a second batch of dollar-denominated notes following a sale in May.
The announcement came a day after Li & Fung announced three acquisitions and four agreements that may increase sales by $1 billion next year. The Hong Kong-based company is reviewing more possible purchases with “the deal pipeline being extremely strong; maybe never as strong as today,” CLSA Ltd. analysts Aaron Fischer, Huei Suen Ng and Mariana Kou said in a July 8 note to clients, citing the company.
“They’re constantly looking to add to their range of sourcing capabilities,” Matt Marsden, a consumer-sector equity researcher at Samsung Securities (Asia) Ltd. in Hong Kong, said yesterday. “According to management guidance, they would have total finances available of US$1.15bn in their acquisition war chest after this fundraising.”
President Bruce Rockowitz said on July 8 that the company had about $800 million left in its takeover fund.
Li & Fung dropped 0.66 percent to close at HK$37.55 in Hong Kong trading while the Hang Seng Index advanced 0.44 percent. Li & Fung has climbed 16 percent this year, making it the best performer on the benchmark.
Raising Funds
The latest bonds will mature on May 13, 2020, and pay interest of 5.25 percent a year, the company said in its statement to the Hong Kong stock exchange. Li & Fung “intends to raise funding through the issue of the new notes primarily for business development and acquisitions,” it said.
Citigroup Inc., HSBC Holdings Plc and JPMorgan Chase & Co. managed the debt sale.
The sale added to a $400 million fundraising by Li & Fung in May, it said. The company has $500 million of bonds due in 2017, according to data compiled by Bloomberg.
The outsourcer said on July 8 it paid $140 million to buy three companies: Jackel Group, with packaging, perfume and personal-care businesses, denim clothing company HTP Group, and Cipriani Accessories Inc., which it described as a designer, distributor and importer of accessories in the U.S., Canada and Mexico.
L’Oreal, Coty
Jackel’s clients include LVMH Moet Hennessy Louis Vuitton SA, L’Oreal SA and Coty Inc., according to Rockowitz.
Li & Fung also signed a licensing agreement with Sean John, the brand started by rap artist Sean “Diddy” Combs. It entered into a partnership with fashion stylist Rachel Zoe to create women’s clothes, shoes, bags, jewelry and accessories. The outsourcer expanded a licensing agreement with sportswear marketer TapouT and formed a company with Star Branding with partners that include Tommy and Andy Hilfiger.
Rockowitz has been acquiring rivals and entering into agreements, including one signed with Wal-Mart in January that may generate $2 billion of additional revenue in the first year. The Li & Fung president, who joined the outsourcing specialist after his company was acquired more than nine years ago, has said the July 8 announcements are “the tip of the iceberg.”
Li & Fung, founded as a porcelain and silk trader in southern China in 1906 near the end of the Qing dynasty, derived 64 percent of last year’s HK$104.5 billion ($13.5 billion) sales from the U.S.
It has forecast revenue of $3 billion this year for its U.S. onshore business, under which goods are imported for clients. The rest of its sales are generated by charging a fee for organizing factories and raw materials to make consumer products such as clothes, toys and furniture.
It has a network of about 12,000 suppliers, with about half of its goods sourced from China.
Li & Fung has set a sales target of $20 billion this year. Rockowitz didn’t comment during the July 8 interview on whether it would meet the target.
For Related News and Information: Li & Fung corporate actions: 494 HK <Equity> CACS <GO> Weighted average cost of capital: 494 HK <Equity> WACC <GO> Acquisitions 494 HK <Equity> CACS <GO> Short interest in Li & Fung 494 HK <Equity> SI <GO> Link to Statement:NSN L5AL6A3PR6RK <GO> Top consumer news: TOP CON <GO>
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