Li & Fung Ltd has acquired a 1 percent stake in Sanrio Co, owner of the Hello Kitty brand, as it expands in Japan.

The Hong Kong-based company bought the stake Friday morning, Sanrio spokesman Hideo Yamaguchi said, confirming a Nikkei English News report. Sanrio aims to cut production costs and expand overseas sales channels through the alliance, according to the report.

Sanrio, which consigns 10 percent of its character-goods production to Li & Fung, plans to raise the ratio to about 30 percent in three years, the Nikkei said, without saying how it got the information. Li & Fung, which won court approval this month for its more than HK$7 billion ($902 million) offer for Integrated Distribution Services Group Ltd to gain a logistics network in China, is considering acquisitions in Japan as it expands in Asia to pare its reliance on US sales.

"This is very interesting, and must be connected to the launch of the LF Asia Division," said Matthew Marsden, a Hong Kong-based analyst at Samsung Securities Co. "Li & Fung may intend to distribute the Hello Kitty brand in China via their new capabilities acquired with IDS's infrastructure."

Li & Fung has bought rivals and forged supply agreements with retailers worldwide, boosting revenue in 17 of the last 18 years by selling increasing amounts of Asian-made consumer goods, from Tommy Hilfiger clothes and Kate Spade bags to furniture and toys. The supplier's clients include Kohl's Corp, Esprit Holdings Ltd and Inditex SA's Zara.

Bruce Rockowitz, Li & Fung's president, has said he's looking at clothing, accessories, bags and shoes as he considers possible purchases in Japan. Sanrio-branded products include clothes and accessories, toys, video games, jewelry and minicars.

Li & Fung dropped 0.8 percent to HK$42 Friday in Hong Kong. The stock has climbed 30 percent this year, compared with an 8.4 percent gain for the benchmark Hang Seng Index.

Sanrio rose 0.6 percent to close at 1,655 yen in Tokyo trading and has more than doubled in market value this year.

Sanrio raised its net income forecast 31 percent to 6.2 billion yen ($76 million) for the year ending March because of higher revenue from licensing characters, which also include My Melody and Little Twin Stars.

The Tokyo-based company plans to increase its business ties with Li & Fung, Yamaguchi said without elaborating.

Katherine Wang of GolinHarris, the public relations agency hired by Li & Fung, couldn't immediately be reached for comment.

Bloomberg

(HK Edition 10/16/2010 page3)