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The Rupp Report: The Fong's Group: Stronger Than Ever

Jürg Rupp, Executive Editor

The third Rupp Report of this year informed the global textile community of some remarkable moves for the future of Hong Kong-based textile machinery manufacturer Fong's Industries Co. Ltd.: On Jan. 14, 2011, China Hengtian Group Co. Ltd., also known as China Hi-Tech Group Co. Ltd. (CHTC), and Fong's announced that CHTC would make a possible acquisition of shares, subject to certain conditions for completion, for a majority interest in Fong's Industries (See " The Rupp Report: Possible New Major Shareholder For Fong's Group," www. TextileWorld.com, January 18, 2011).

According to the sale and purchase agreement between state-owned enterprise CHTC and Fong's, CHTC agreed to acquire a major part of the shares of the Fong's Group. CHTC and its subsidiaries are engaged in principal business activities including Jinwei Textile Machinery Co. Ltd., cargo truck, and textile production and trade, among other strategic investments. CHTC also states that it holds an important position in the global textile machinery industry, which sells more than 90 percent of its product to the domestic Chinese market.

The Deal Is Done
At ShanghaiTex 2011, which took place last month, Fong's Industries held a press conference, reporting on the status of the deal between Fong's and CHTC. Zhang Jie, CHTC chairman, reported that CHTC has completed its acquisition of the controlling interest in Fong's Industries and that the acquisition enables CHTC to further strengthen its business and operation modes within the textile machinery industry. The Rupp Report investigated to get more information.

Not A Takeover
Official sources from the Fong's Group confirmed that the action does not mean that Fong's has been taken over, but rather that Fong's has a new major shareholder. At the moment, CHTC holds some 63 percent of Fong's shares and now-Honorary Chairman Fong Sou Lam holds 22 percent, resulting in a "free floating" share portion of some 15 percent.

The acquisition is part of a strategy to advance the three business sectors of CHTC subsidiary China Textile Machinery (Group) Co. Ltd. (CTM) — cotton spinning, man-made fiber, and printing and dyeing machinery manufacturing; and is said to compensate CTM's "drawbacks" in the printing and dyeing sector.

Internationalization
Apart from Fong's Industries' large product portfolio, a major asset sought by CTM was the Fong's business model, which will be introduced into various CTM enterprises, and it will become an approach for effectively improving operation level. The significance lies in the advanced market-oriented international operation model, enabling CHTC to enter international markets through the Fong's platform. Officials said the entire Fong's management team and sales force would be retained.

While Fong's Industries has stronger global sales than CTM, CHTC may help the integration of Fong's and CTM in China sales. As was noted at the press conference: "[CHTC] now has a financial platform, and it will build a financial platform for textile machinery, which will provide more comprehensive services to users, such as leasing business, and will further improve competitiveness of product marketing of Fong's Industries in capital support."

For years, Fong's Industries has conducted independent research and development. In the future, both companies will share their experience. Fong's has further improved its technology, created a global sales network and has looked into globalizing its dyeing and finishing services through the acquisition of European dyeing and finishing machinery brands.

Another goal is clear: The combined power of financial resources and experienced manpower will give Fong's a further push to become an even more established global supplier of premium textile machinery, and not only for local markets.

Securing The Legacy
Fong's Founder Fong Sou Lam's main target in selling his majority stake was to secure the legacy of his lifetime work. This target has been realized thanks to the strength of the new major shareholder.

July 12, 2011

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