By Steven Jiang
The share price of Shandong Jining Ruyi Woolen Textile Co Ltd, the listed arm of Chinese textile manufacturer Shandong Ruyi Group, surged 7.42 percent on Monday after media reported that it expects to pay about $45 million for roughly a 40 percent stake in Japanese clothing maker Renown Inc.
Ruyi's share price closed at 14.92 yuan ($2.18) on Monday in Shanghai, while Renown's shares surged about 35 percent to 191 yen ($2.12) on the Tokyo Stock Exchange.
Japanese Business Daily Nikkei reported on Sunday that Renown Inc has entered final talks with Shandong Ruyi to become a unit of the Chinese textile company.
Shandong Ruyi is expected to become the largest shareholder in Renown, exceeding Neoline Holdings, which bought 24.9 percent of Renown in 2008, according to Nikkei. Officials of Shandong Ruyi and Renown both declined to comment.
Analysts said that if the deal is completed, Shandong Ruyi will introduce Renown's popular brands, such as D'urban and Henry Cotton's, to the Chinese market, and at the same time, would greatly improve its presence in Japan.
Li Weimin, an analyst with Fortune Securities, said that if the news is verified, it would be a sign that Ruyi is going to further expand downstream since it already owns many of the world's leading technologies in textile manufacturing.
It seems to be a part of Ruyi's 'fabric and clothing integration strategy and is also expected to help boost the company's net profit in the future.
As a major Chinese textile player, Shandong Ruyi annually produces about 20 million meters of worsted wool fabric, 20 million meters of denim, 300 million meters of dyed cotton cloth and 150,000 tons of cotton yarn.
With a total asset of 7.3 billion yuan and 30,000 employees, Ruyi reported 1.7 billion yuan in sales in 2009.
As it has struggled amid the global economic meltdown, Renown had sales of $1.43 billion in the last financial year to February and it booked a net loss of $121 million in the same period.
Li said that Ruyi has constantly put an emphasis on its overseas development and that would be a part of its effort to integrate mature garment enterprises in China and abroad, supported by its great financial strength.
In 2009, Shandong Ruyi planned to inject 500 million yuan into the debt-laden ITAT Group, China's largest owner and operator of apparel retail chain stores. But it failed several months later as Ruyi was not able to take on ITAT's huge debt, according to media reports.
China's large textile businesses took in 133.15 billion yuan in profits in the first 11 months of last year, according to figures released by the China Textile Industry Association.