Test Rite International Co (特力), a domestic trading and retail group, yesterday announced plans to acquire 68 percent of Tong Lung Metal Industry Co (東隆五金) to strengthen its original design manufacturer and R&D services.
The share purchase is valued at approximately NT$2.18 billion (US$66.3 million), or 51.25 million common shares obtained from Tong Lung's six corporate shareholders, according to a statement released yesterday.
The transaction is expected to be concluded by the end of the year, the statement added.
"Test Rite's reinvestment in Tong Lung is driven by Tong Lung's excellent capability in design, R&D and manufacturing in door lock products, in the hope of consolidating the competitive edge of the two parties for a win-win outcome," the firm said.
On the brink of bankruptcy eight years ago, Tong Lung re-listed its shares on the over-the-counter GRETAI Securities Market in March this year, setting a restructuring record in the process.
The global consumer lock market, estimated at US$30 billion, is a highly fragmented industry with the top seven brands accounting for only 30 percent of market share. The remainder is taken up by a variety of local brands.
To survive in the challenging sector, manufacturers would require an upgraded marketing and service infrastructure as well as an efficient logistics system, the Test Rite statement said.
"We believe the combination of Test Rite and Tong Lung is a clear strategic fit and the enhanced value proposition should further secure the growth opportunities arising from the ever-increasing outsourcing trend of global lockset brands as well as the under-served markets outside of North America," said Tony Ho (何湯雄), chairman of Test Rite.
Test Rite, with retail distribution channels including home furnishing brands B&Q, Hola and Homy, reported over NT$34 billion in sales last year.
By investing in Tong Lung, Test Rite plans to enter the hardware market for security solution applications, or mechanical security solutions, Ho said.
The company also aims at expanding services from the business-to-consumer market to the business-to-business section by developing the design and manufacturing model, he added.
In the short-run, Test Rite will integrate its supply chain resources in China to further expand Tong Lung's capacity and meet the rising demand in a cost efficient manner.
In terms of mid-to-long-term strategy, Test Rite would expand its product lines so that Tong Lung becomes a total solution provider for the design and manufacturing needs of the global security solution industry, Ho said.
Tong Lung, established in 1954, is known internationally for Ezset-branded locks, as well as the "Lucky" and "Posse" brands for the domestic market.
The company reported sales of NT$2.07 billion last year, a 15.6 percent jump from 2004. It posted after-tax earnings of NT$375 million, or earnings per share of NT$5.28.
In 1998, Tong Lung suffered heavy losses from the embezzlement of company assets by its former chairman and the company underwent a court-ordered reorganization pursuant to an application by creditor banks in 2000.