3rd UPDATE: Collective Brands To Be Broken Up In $1.32 Billion Deal
May 01 2012 - 6:00PM
Dow Jones News
NEW YORK (Dow Jones)--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 a 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
disclosure that it was launching a review of strategic and
financial alternatives.
Shares of Collective Brands ended Tuesday trading up 1.9% to
$21.16, while Wolverine's stock dropped 4.4% to $40.10.
The planned acquisition came as Collective Brands found itself
at an inflection point. Last summer, the company 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 Collective Brands' 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.
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 operated more than 4,300 stores globally.
Wolverine estimated the deal would have a minimal impact on its
2012 results but would add 25 cents to 40 cents a share to 2013
earnings and 50 cents to 70 cents a share 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.
Before 1993, Wolverine had just three brands--the namesake line,
Hush Puppies and Bates. Since then, the company scoped up a handful
of brands, often beginning from a small geographic base before
expanding the acquired brands to more international markets.
Wolverine will own 16 brands after acquiring the four owned by
Collective Brands.
Nearly one-third of Wolverine's revenue and more than 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 that
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 that Saucony closely
aligns with Wolverine's largest brand, Merrell, as both incorporate
a minimalist style and address the training and running
categories.
In an interview with Dow Jones Newswires, Krueger said the deal
would help to address some of Wolverine's underpenetrated
categories. Less than half of Wolverine's business is in the
women's arena but Wolverine will have a greater ability to reach
those customers as three of the acquired brands--Sperry, Saucony
and Keds--skew heavily to women.
Krueger said that, with the acquisition of Stride Rite, about
15% of reported sales will come from retail, above the current 7%
total. Additionally, the Stride Rite retail presence will give the
company an opportunity to bolster sales of Wolverine's children's
lines.
Wolverine will fund its 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 that, 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 a
share.
Swinand said Morningstar had a fair value of $22 on Collective
Brands. He added that Wolverine is paying a higher multiple for the
Collective Brands business than what VF Corp. (VFC) paid for
Timberland Co.
Analysts have said the timing of a deal to acquire Collective
Brands made sense, as the Sperry and Saucony brands have performed
well and as 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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