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Shandong Wants To Make Sure That Mergers And Acquisitions Can Be Digested.

2020/3/17 11:50:00 0

Shandong Ruyi

2020 since the beginning of the year, Shandong Ruyi science and Technology Group Co., Ltd. (Shandong Ruyi) has been deeply trapped in the turmoil of being prosecuted and being chased.

First, chief executive officer of Israel garment manufacturer Bagir Micha Ronen said it was considering taking legal action against Shandong's unwillingness to pay 13 million 200 thousand dollars for its breach of contract. It was followed by Shandong's Ruyi brand Aquascutum, which was prosecuted for failing to pay Calvelex15.5 pounds of Portugal suppliers and faced a debt crisis of 27 million 600 thousand pounds; followed by Japanese apparel company Renown, it said that it had not yet recovered 5 billion 300 million yen from Shandong Ruyi subsidiary. This led to Renown losing two consecutive financial years. Recently, Reuters quoted four people with direct informed sources saying that since Shandong announced its purchase of Bally at a price of 600 million US dollars in 2018, funds have not yet been put in place, and the takeover operation will be stranded.

In the face of a series of debt collectors in foreign brands, Shandong Ruyi group spokesman said the main reason for Renown and Calvelex was attributed to the new coronavirus epidemic situation and is solving these problems. If the cash flow of Shandong Ruyi group is short due to the outbreak, it will not be reasonable to explain that the Bally and Bagir acquisitions have not been paid for many years.

When dealing with domestic suppliers, the reputation of Shandong's reputation is equally worrying, and the confusion management within the group makes it difficult for the acquired overseas brands to develop healthfully. A reliable informant disclosed to BoF: "Shandong Ruyi once bought a Italy high Ding brand and placed it in the factories of the three eastern provinces, but because it had no money to pay the final payment, the factory was looking for other channels to sell cash. However, shopping malls need regular authorization from Shandong. I didn't expect Shandong to offer the authorization letter very readily, and decided to give up the brand. In addition, the internal situation of Ruyi group in Shandong is rather confusing, and some businesses are unable to carry out normal business. As of press release, Shandong Ruyi did not reply to BoF's request for comment.

In fact, Shandong's Ruyi debt crisis has long been a sign.

According to the 2019 financial report, Shandong Ruyi woolen clothing group Limited by Share Ltd (Ruyi group), a listed company in Shandong, has an operating income of about 1 billion 150 million yuan, with a total profit of 54 million 149 thousand and 300 yuan, down 58.43% from the same period last year. However, in the third quarter of 2019, Shandong's liquidity liabilities exceeded 21 billion 900 million yuan, and the current liabilities were 3 billion 488 million yuan in one year.

Fortunately, in October 18, 2019, Jining Urban Construction Investment Co., Ltd. offered timely help, and 3 billion 500 million bought Shandong's 26% stake in Ruyi 26%, and offered "a voluntary loan", that is, an irrevocable guarantee in full, helping to solve the debt problem in the short term.

Although Shandong Ruyi attributed the decline of its performance to the external factors such as the unfavorable macroeconomic situation, the increasing uncertainty of market demand, the tightening of environmental policies and the outbreak of new coronavirus. But looking at Shandong's 10 year acquisition timeline, BoF found that the following three reasons led to the "LVMH of China" deeply in debt and also served as a warning for other Chinese companies wanting to acquire foreign brands.

Can't stop buying and buying.

Ruyi group was first established in 1972, and is one of the largest textile enterprises in China. Before buying foreign brands, Ruyi group is mainly engaged in the upstream work of raw material cultivation, textile processing, clothing OEM and other production chains, lacking the clothing brand design and sales links.

Yau Yau Fu, chairman of Ruyi group of Shandong, once told the media: "it is very difficult to form a high-end fashion brand in the short term. China's garment industry is still lagging behind the West in terms of innovation and design. Without 30 to 50 years of development, it's hard for you to do that.

This is why Shandong is willing to invest in acquiring foreign brands with certain market maturity to complete its industrial chain.

Since 2010, Shandong has opened its global acquisitions. In 2016, the group was famous for its contribution of 1 billion 300 million euros (about 10 billion 238 million yuan) to the French light luxury group SMCP, which included three brands of Maje, Sandro and Claudie Pierlot.

In 2017, Shandong was a promising acquisition year. It bought several foreign brands in March, October and November, including the British windbreaker brand Aquascutum, the Gieves&Hawkes, Kent&Curwen, Hardy Amies, Cerruti 1881 of the group, and Japan's menswear brand D "URBAN".

Shandong Ruyi's latest acquisition in January 31, 2019, it spent 2 billion 600 million U.S. dollars (about 18 billion 300 million yuan) to complete the acquisition of the American comprehensive fiber and Polymer Co Invista's clothing and senior textile business, including fabric brand Lycra (Lycra).

According to statistics, the purchase and purchase that did not stop for 10 years led to the investment of Shandong Ruyi investment outflow of 42 billion 470 million yuan, and the cash flow gradually tightened, laying the foreshadowing for the debt crisis in 2019.

   Foreign light luxury brands are weak in China market

Shandong Ruyi originally wanted to expand its Chinese market with the help of foreign brands' brand effect. However, some brands have been in a state of continuous loss before they are acquired. It is not easy to gain a firm foothold in the Chinese market in the short term and turn losses into profits. This will further drag down the overall operation of Shandong's Ruyi.

The British windbreaker brand Aquascutum, which was prosecuted by Calvelex in the past few years, is very typical. The brand has a history of nearly 170 years and was declared bankrupt in 2012 due to a sharp fall in sales volume. YGM trade acquired Aquascutum, hoping to revive this century old brand by expanding its sales network in the Asia Pacific region. However, the US financial crisis and the unfavorable operation of China's market led to Aquascutum's closing of 29 stores worldwide, of which 25 were in China. It is reported that the sales volume of YGM, the parent company, fell sharply, losing nearly HK $100 million, forcing YGM to sell the brand.

2016 SupremexAquascutum joint photo source: brand

In view of the bad performance of Aquascutum in China, Shandong Ruyi should take various factors into account before taking this "hot potato", rather than blindly buying it, otherwise its fate will be exactly the same as that of YGM.

In addition, over the past 10 years, when more and more brands have entered China, Chinese consumers have more and more awareness of foreign brands and aesthetic changes. The choice of clothing is not limited to foreign 100 years old brands. Some new brands and high-end luxury brands are well received by consumers. This also led to the acquisition of light luxury brands can not open up the Chinese market.

  Chinese enterprises are not convinced by foreign brands.

Shandong Ruyi group, as the earliest and largest integrated garment processing enterprise in China, from the design of fabric, style, production to after-sales service, has no relevant experience in brand design and operation, and has a very big conflict with the corporate culture of foreign brands, thus producing inconsistent concepts of operation.

The clothing brand Renown, which was born in Osaka more than 100 years ago, is Japan's largest clothing brand operator in 80s. It operates more than 30 famous clothing brands in Japan and Europe, and more than 2000 clothing stores in Japan. After 2003, Rena was affected by the economic recession and financial crisis in Japan, and sales revenue declined. In 2010, Ruyi Group invested 4 billion yen in holding Renown41% shares and became a major shareholder of the brand.

However, the documentary "the 400 day of the Chinese boss's purchase and acquisition of Japanese enterprises" shows that because of the different corporate culture and business philosophy, Ruyi group's failure to end the 3 years' 300 stores and 10 years 2000 stores in Renown market has failed. Renown has not been able to catch up with the rapid development of China's electricity supplier because of its excessive reliance on entity stores, and has been in a state of low sales.

However, Qiu yah Fu, chairman of Ruyi group of Shandong, told Bloomberg reporters that after buying SMCP, Bally and Lycra for $4 billion, it will slow down the pace of acquisitions and focus on its brand matrix, expecting to buy the business that has been acquired in 5 years.

The difference between Chinese enterprises and foreign brands in terms of culture, business management and management leads to acclimatization. At present, any merger and acquisition deals with the synergy effect after the merger. If the two sides fail to reach a consensus on the operation, it is difficult to win a win-win situation.

If the core problem is not solved, the so-called "China LVMH" is just empty talk.


Source: BOF Author: Shumin Lai

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