The Rupp Report: Oerlikon Neumag — Next Stop On A Chinese Shopping Tour

The world of textiles, where everybody knows everybody,is something like a small village, and therefore full of rumors — as in every small village, where everybody knows everybody. This saying comes to mind upon reading the latest — now confirmed — news from Germany-based Oerlikon Textile GmbH & Co. KG:

"Oerlikon Neumag [a business unit of Oerlikon Textile], will in the future focus on its main business activities like BCF, Staple Fiber and selected nonwovens equipment. On August 5, 2011 Oerlikon Neumag signed all necessary documents to sell its carding business (retroactive with effect from April 1, 2011) to the Zhengzhou Hi-Tech Non-woven Technology Co., Ltd, China, a subsidiary company of the Chinese Hi-Tech Group Corporation (formerly China Hengtian Group Co., Ltd.)., one of the leading textile technology groups in China.

"In the technological field of Carding, the Business Unit Oerlikon Neumag produces special installations and components for the nonwovens production, employing about 250 people at three locations in Germany, Austria and Italy.

"This purchase by the Chinese group follows the acquisition of the share majority of Hong Kong-based Fong's Industries Co. Ltd. (See " The Rupp Report: The Fong's Group: Stronger Than Ever," www. TextileWorld.com, July 12, 2011).

This new development means the end of a rumor, which started last year, when the whole industry approached the Rupp Report asking if it's true that Oerlikon Textile is trying to sell its nonwovens business, for whatever reason. As usual, the Rupp Report investigated and asked people from Oerlikon management, and, of course, the Neumag people. And, of course, everybody denied the rumors — and the discussed issue. Now comes the truth: The transaction is expected to close in the third quarter of 2011.

Strategic U-turn
Thomas Babacan, CEO of Oerlikon Textile and COO of Switzerland-based parent company Oerlikon Group said, "We are focusing our organization on areas where we are strategically well positioned." And, he added, "There is clearly better development potential for the Carding business and its employees within the Hi-Tech Group due to the growing importance of China market for carding business and the well established organization and presence of Hi-Tech Group in the related business fields in China."

And now, the new management of Oerlikon Textile has come to the conclusion that "the Carding business of Oerlikon Neumag ... does not fit anymore to the business strategy of Oerlikon Textile as it was not able to achieve the targeted profitability levels from Oerlikon Group over the past several years. Therefore, Oerlikon Textile conducted a divestment search process for a new owner with a strategic interest, the Carding capabilities and the ability to manage the turnaround of Oerlikon Neumag's Carding business. After detailed evaluations, a sales agreement with Hi-Tech Group has been achieved. The parties agreed not to disclose the sales price."

The management further reports, "In the course of executing the sales agreement the respective employees are planned to be transferred to the Hi-Tech Group's local affiliate, too, however with German, Austrian and Italian labor law, respectively continuing to apply according to statutory law."

Existing Relations Strengthened
Another reason for this solution is the fact that Oerlikon Neumag and Hi-Tech Group have already worked together by complementing Oerlikon Neumag's high-tech competencies with selected Hi-Tech Group products. Babacan is certain that this move will place Oerlikon Neumag's Carding business on a "solid and future-oriented foundation." He added that the deal "will create valuable synergies for customers," and noted Hi-Tech Group's commitment "to continuing Carding activities and employment in Europe."

Zhang Jie, chairman of Hi-Tech Group, said: "This acquisition is highly in line with Hi-Tech Group's corporate strategic goal and will be an important step for our global business development. We are very confident that the synergies between the acquired Carding unit and our existing nonwoven business will bring benefits to all parties involved."

The carding unit will operate as an independent business division and should continue to serve the traditional markets by offering high-tech products. In addition, Oerlikon stated that as part of Hi-Tech Group, the Carding Division will continue to offer quality European-made products to its existing and future customers.

It was also announced that, "within the next three years after the acquisition, Hi-Tech Group will make more investments into European locations to enrich the R&D ability and will reduce costs by optimizing resource allocation worldwide." The consequences of this statement are somewhat foreseeable.

The Hi-Tech Group is said to be one of the strongest and largest textile machinery suppliers in China. Today, it claims it is the second-largest in the world, and has produced high-quality textile machinery for more than sixty years.

Focusing On Core Business Activities
After the transaction closes, Oerlikon Neumag will focus on its core business activities, which are mentioned above. The company said the sale of the Carding business would not impact the Neumünster, Germany, site. Oerlikon Group CEO Michael Buscher is convinced that "this strategic step contributes by systematically increasing the profitability of the Segment Oerlikon Textile. Oerlikon Neumag can now fully concentrate on its main business and we ensure that the Carding business is placed with a strategically appropriate parent company in future."