Global sourcing giant Li & Fung got a shot of extra cash this week, selling its Asia consumer and healthcare distribution business to conglomerate Dah Chong Hong in a deal worth $350 million.
The Hong Kong-based supply chain manager, which sources products for big retailers like Walmart and Target, has been under pressure to offload its noncore assets. Li & Fung's Hong Kong-traded shares have fallen just under 40% in the past year amid sluggish top-line growth and weak operating results.
In that context, the deal appears to make sense. Selling non-core businesses would allow Li & Fung to concentrate efforts on its sourcing and logistics franchise, as well as helping the group cut its overall debt.
In a statement to the Hong Kong stock exchange on Tuesday, William Fung, chairman of Li & Fung, said the sale of the distribution business was "part of the group's strategic objective", allowing it to focus on its "core trading and logistics business."
Fung added that the all-cash deal would strengthen the group's cash flow and balance sheet, boosting its financial flexibility. Li & Fung's net debt rose to $1.11 billion at the end of last year, up from $896 million the previous year.