2nd UPDATE: Collective Brands To Be Broken Up In $1.32 Billion Takeover Deal
May 01 2012 - 2:09PM
Dow Jones News
Wolverine World Wide Inc. (WWW) and a pair of private-equity
firms agreed to pay roughly $1.32 billion to acquire Collective
Brands Inc. (PSS) in a deal that will split portions of the
shoemaker's business.
Along with Blum Capital Partners and Golden Gate Capital,
Wolverine agreed to pay $21.75 per share to acquire the owner of
Payless and Stride Rite, in a deal valued at about $2 billion when
including the assumption of debt.
The purchase price represents a premium of 104% to the 30-day
volume weighted average trading price to Collective Brands' August
announcement it was launching a review of strategic and financial
alternatives.
Shares of Collective Brands were recently up 2% to $21.19 in
recent trading while Wolverine's stock fell 2.9% to $40.73.
The planned acquisition comes as Collective Brands found itself
at an inflection point. The company last summer said it would close
about 475 underperforming stores over a three-year period in an
effort to better position its Payless and Stride Rite stores.
Upon closing, which is expected to occur in the back half of
2012, Wolverine will acquire the company's wholesale and retail
operations of the Sperry Top-Sider, Saucony, Stride Rite and Keds
brands. That unit had more than $1 billion in revenue in the fiscal
year ended Jan. 31.
Wolverine estimated the deal would have a minimal impact on 2012
results but would add 25 cents to 40 cents a share to 2013 earnings
and 50 cents to 70 cents in 2014. That three-year window excludes
one-time transaction expenses, integration costs and other
acquisition-related expenses, which are expected to collectively
hurt 2012 earnings by 20 cents to 30 cents a share.
Wolverine, which already owns the Hush Puppies, Merrell and
Cushe brands, has seen rising demand for minimalist footwear and
strong sales abroad, with the Merrell brand emerging as a
particular source of strength. The company has increased its
spending to support initiatives to spur further growth, but the
higher costs have pressured its bottom line and margins of
late.
Nearly one-third of Wolverine's revenue and over 60% of volume
is derived from international operations while the Collective
Brands business is largely in North America with only 10% of
revenue coming from outside that region. Wolverine Chief Executive
Blake Krueger told analysts during a conference call his company
could leverage long-established distributor relationships to
accelerate international growth of the newly acquired brands.
For example, Krueger said 4% of Sperry's revenue was generated
outside of North America though he believes the brand's strong
women's business, youthful image and broad range of prices makes it
ideal for international expansion. He added Saucony closely aligns
with Wolverine's largest brand, Merrell, as both incorporate a
minimalist style and address the training and running
categories.
Wolverine will fund the company's portion of the deal through a
combination of cash on hand, $900 million of bank term loans and a
$375 million notes offering. Chief Financial Officer Donald Grimes
said the company will have a new $200 million revolver that will be
untapped at the acquisition's closing.
Morningstar analyst Paul Swinand said though Wolverine and the
private-equity firms touted the high premium prior to Collective
Brands' strategic review announcement, the purchase price wasn't
too rich as the stock, in his view, had been "enormously
undervalued" when it was trading between $9 to $10.
Swinand said Morningstar had a fair value of $22 on Collective
Brands. He added Wolverine is paying a higher multiple for the
Collective Brands business than what VF Corp. (VFC) paid for
Timberland.
Blum Capital and Golden Gate will jointly pick up the operations
of Payless ShoeSource and Collective's international licensing arm.
Those units had $2.4 billion in revenue in the latest fiscal year
and operate more than 4,300 stores globally.
Analysts have said the timing of a deal to acquire Collective
Brands made sense, as the Sperry and Saucony brands have performed
well and the economy picks up. Observers said they doubted a
bidding war would ensue for the company and investors on Tuesday
seemed to agree as the share price is currently trading under the
deal's value.
-By John Kell, Dow Jones Newswires; 212-416-2480;
john.kell@dowjones.com
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