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Wal-Mart Supplier Li & Fung Boosts M&A War Chest

Li & Fung Ltd., the world’s biggest supplier for retailers including Wal-Mart Stores Inc., has $1 billion to buy other companies, President Bruce Rockowitz said.

A bond sale earlier this month boosted its acquisition fund, Rockowitz said in Hong Kong today. The company sold $400 million of 10-year bonds denominated in U.S. dollars.

Li & Fung, founded in southern China in 1906, has announced a sales target of $20 billion this year, a 49 percent jump from 2009, when revenue fell for the first time since the Hong Kong-based company first sold shares to the public in 1992. Acquiring rivals, and a new contract to supply Wal-Mart, will enable it to reach the sales goal, the company said.

“There are good opportunities for acquisitions because the valuations of some companies have fallen after the financial crisis,” Renee Tai, vice president for research at CIMB-GK Securities HK Ltd., said in a phone interview today. Tai has a “neutral” rating on the stock.

Li & Fung, the world’s largest supplier of clothing, toys and furniture to retailers, said this month’s bond sale of was to finance “business development and acquisitions.” The U.S. economy, which accounts for about 64 percent of Li & Fung’s revenue, is “recovering well,” William Fung, the company’s managing director, told reporters after the annual general meeting today.

‘Targets In Mind’

“We tend to only seek financing when we pursue acquisitions and we do have a few potential targets in mind,” Fung said. Fung and his brother Victor are the company’s biggest shareholders.

Its agreement with Wal-Mart, under which the U.S.-based retailer eventually has the right to buy WSG Pte, the unit that supplies it, may add $2 billion to revenue this year, the company said.

Li & Fung rose 1.6 percent to close at HK$35.25 in Hong Kong. The stock has risen 9.3 percent this year, compared with an 8.8 percent decline in the benchmark Hang Seng Index.

The company, also supplier to Inditex SA’s Zara, Target Corp., and Macy’s Inc., forecast “strong top line” growth this year as its customer base including retailers and brand companies are doing very well, Rockowitz said. Net income last year rose 39 percent to HK$3.37 billion ($432 million) as sales fell 6 percent to HK$104.5 billion.

“What a difference a year makes. It’s a tremendous difference from last year,” Rockowitz said. “The U.S. economy has been improving quite rapidly.”

Visage Group

Li & Fung, which gets 27 percent of its sales from Europe, in February agreed to pay as much as 173 million pounds ($250 million) to buy Visage Group Ltd., a private-label apparel supplier to U.K. retailers. Last year, it announced four acquisitions that included Liz Claiborne Inc.’s sourcing business for $83 million and the purchase of units owned by New York-based Wear Me Apparel LLC for as much as $401.8 million.

The U.S. will continue to be Li & Fung’s most important market in 2010, Fung said, adding the company’s sales haven’t been directly hit by the weakening value of the euro. About 95 percent of the company’s transactions are conducted in U.S. dollars, he said.

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