In Brands, Finance

In a move to simplify their business global trading and sourcing group, Li & Fung’s $1.1 billion strategic divestment includes the sweater, furniture, and beauty verticals. The buyer consortium is composed of Hony Capital, one of China’s biggest private equity firms, along with Fung Holdings 1937 Limited and Fung Investments Limited.

WHO: In 1906, the Fung family began selling porcelain, silk, and fireworks from a trading post and came to embody Hong Kong’s importance as the bridge from China’s factories to the world in 2015. Li & Fung is considered one of the world’s top global supply chain partners to consumer brands and retailers. 

WHY: The move is aimed at further simplifying its business and focus on core competencies.

IN THEIR OWN WORDS:  Spencer Fung, group CEO of Li & Fung, told WWD, “The strategic divestment of the product verticals allows Li & Fung to focus on its core competencies and further strengthens our capital structure. The $1.1 billion proceeds will allow us to pay a generous dividend to our shareholders and the remaining $580 million of cash will give us more financial flexibility as we continue to execute our Three-Year Plan goal of building an end-to-end digital supply chain. Our first-half results were solid and our customers and vendor partners are responding very positively to our new digital solutions. We are very excited to be creating a future supply chain that does not yet exist in the market.”

John Zhao, chairman and CEO of private equity firm Hony Capital, commented on the deal, “We look forward to working with the management teams of the product verticals to sharpen their distinct strategies. With our value-added services, future success lies in going deeper into their respective product categories.”

DETAILS: 

  • Li & Fung divests of furniture, sweater, and beauty verticals for $1.1 billion to a buyer consortium composed of Hony Capital, one of China’s biggest private equity firms, along with Fung Holdings 1937 Limited and Fung Investments Limited.
  • Private equity firm Hony Capital will take a 45% stake, Fung Holdings 1937 Limited will have a 45% and Fung Investments Limited FIL will maintain a 10% stake.
  • Revenue for the sweaters, furniture, and beauty verticals was $1.87 billion for the year ended September 30. The categories have seen a downward trend. In 2016, it registered $92 million in core operating profit and the year before that $103 million.
  • A special dividend of $520 million will be offered in cash to shareholders, while the remaining $580 million will be reinvested back into the company.
  • Fung Holdings 1937 Limited and Fung Investments Limited are both controlled by Li & Fung’s founding Fung family.
  • Li & Fung will continue to operate in the areas of supply chain solutions, logistics, and onshore wholesale business.

Photo: Gabriel Izgi via Unsplash 

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