Li & Fung Acquires U.K. s Visage

Li & Fung Ltd., the biggest outsourcer for retailers including Wal-Mart Stores Inc. and Inditex SA s Zara, will buy U.K. clothes maker Visage Group Ltd. to expand in Europe, its fastest-growing market.

Li & Fung agreed to pay as much as 173 million pounds ($264 million) for Visage, a private-label apparel supplier to U.K. retailers. The Hong Kong-based company will use its cash reserves for the acquisition, it said in a statement to the city s stock exchange late yesterday.

The purchase is the fourth in the past year for Li & Fung, which has said it has a $1 billion acquisition fund and had HK$3.16 billion ($407 million) cash in June. The company, which has a $20 billion revenue target for 2010, last month signed a deal with Wal-Mart Stores Inc. that may generate an additional $2 billion of sales in the first year.

The acquisition helps Li & Fung expand its portfolio and spread the risk of being too dependent on the U.S. market, Kenny Tang, an analyst at Redford Assets Management in Hong Kong, said in a phone interview today. Consumer sentiment and recovery is recovering slower in Europe compared with the U.S. but the future growth in the continent is still positive, said Tang, who recommends buying the company s stock.

Li & Fung rose 0.8 percent to HK$36 at 11:25 a.m. in Hong Kong trading today. The stock has gained 31 percent over the past six months, making it the third-best performer on Hong Kong s benchmark Hang Seng Index.

Visage, based in Manchester, England, designs and produces men s, ladies and children s wear and has 500 employees in the U.K., Hong Kong, China, Bangladesh and India, according to yesterday s statement. All the Visage workers will be absorbed into Li & Fung, President Bruce Rockowitz said in a phone interview today.

Acquiring Visage may increase Li & Fung s 2010 earnings per share by between 3 and 4 percent, said Matthew Marsden, a Hong Kong-based analyst at Samsung Securities who recommends buying the company s shares. This gives them the scale they need to grow their U.K. onshore business in the same way they ve grown their U.S. onshore business, he said in an interview today.

Li & Fung will probably exceed its $20 billion revenue target this year, said Marsden. Onshore business refers to the company s designing goods for clients as well as finding suppliers to make the products.

Visage will provide a substantial platform and suitable infrastructure for the future development of the group s apparel business in Europe, the world s largest supplier of clothes, furniture and toys to retailers said in its statement.

Li & Fung, whose biggest shareholders are billionaire brothers Victor and William Fung, was founded in southern China in 1906 near the end of the Qing dynasty. The company, which counts Kohl s Corp., Target Corp. and Marks & Spencer Plc among its clients, has a $1 billion acquisition fund to take advantage of opportunities in the U.S., Europe and Hong Kong, Rockowitz said in October.

Li & Fung s profit in the first half of 2009 rose 13 percent to HK$1.4 billion after cutting operating costs. The company, which makes more than 60 percent of sales in the U.S., reports 2009 earnings next month.

The outsourcer s sales in Europe increased 59 percent to HK$13.7 billion in the first half of last year, compared with a growth rate of 11 percent for the U.S. and 12 percent for Canada.

The U.S. market looks in better shape than the European market, said Rockowitz. It was first into the recession and is first to recover.

While the economic recovery will be slower than what people would want, he forecast U.S. growth to continue. We don t believe in a double-dip recession. These things take time to fix. I don t think it s shocking that it s slow.

Visage posted profit after tax and extraordinary items of 14 million pounds in the year ended January 2009, compared with 14.4 million a year earlier, according to yesterday s statement. It was founded in 1981, according to its Web site.

Li & Fung will pay for the acquisition in cash and loan notes over the next five years, according to the statement. The total payment may be lowered if pretax profit for the year ending January 2010 is less than an unspecified threshold.

The sellers include Bank of Scotland Integrated Finance, a unit of Lloyds Banking Group Plc, Jeremy Hacking Scholes, and Anita and Sanjeev Mehan, according to the statement.