Finally bringing to rest one of the worst kept M&A secrets in recent memory, HanesBrands, Inc. has confirmed that has entered into a definitive agreement to sell the intellectual property and certain operating assets of the company’s global Champion business to Authentic Brands Group (Authentic) for a transaction value of $1.2 billion, with the potential to reach up to $1.5 billion through an additional contingent cash consideration of up to $300 million based on achievement of performance thresholds.

This agreement, which has been unanimously approved by the HanesBrands Board of Directors, is the successful conclusion of the company’s previously announced evaluation of a range of strategic options for the global Champion business.

Authentic said in a statement that this strategic move demonstrates Authentic’s commitment to expanding its portfolio of iconic sports, lifestyle, entertainment and media brands and will increase its system-wide annual retail sales to more than $32 billion worldwide.

Jamie Salter, chairman and CEO, Authentic said, “We are excited to acquire Champion, a brand that shares our pioneering spirit. Over the last few years, the addition of new brands together with the expansion of live events has grown Authentic into a world leading sports and entertainment licensing company. Bringing Champion into the fold further expands our position in this space.”

Authentic said that by fusing heritage and innovation since 1919, Champion has played a pivotal role in shaping athletic wear, notably introducing the first hooded sweatshirt and the use of breathable mesh fabrics.

“Champion’s iconic ‘C’ logo allows for seamless collaborations with major global brands and designers, driving international appeal while maintaining its recognition, Authentic noted. “It currently operates in more than 90 countries, with more than 40 percent of its business hailing from outside North America. Champion continues to be a premier destination for athletic and casual offerings and has a robust collegiate program that serves as a vital touchpoint for younger generations.”

Nick Woodhouse, president and chief brand officer, Authentic pointed to the company’s “successful efforts igniting Reebok’s momentum” in sports that has created a playbook to achieve a similar feat with Champion.

“With expansive reach, differentiated channel strategy and a balanced strength across its women’s and men’s businesses, Champion has profoundly influenced sports culture. This is the perfect time for the brand to make a significant impact as Women’s sports continue to broaden their presence and fandom worldwide,” Woodhouse noted.

Authentic said it plans to leverage its diverse and multifaceted platform of consumer verticals, along with its expertise in brand-building, to convert the Champion business into a licensed model. The company is in discussions with several existing and potential operators in key regions to manage the manufacturing, physical retail, e-commerce and wholesale operations of the business and maintain the brand’s global footprint.

HanesBrands said in a media release that it has made significant progress in recent years to reignite its Innerwear business, increase market share, attract younger consumers, and strengthen its operating model. Upon completion of the transaction, the company intends to focus on extending its leadership position in the Innerwear category and generating above-market growth through continued consumer-centric product innovation and increased investment across its portfolio of leading brands, including Hanes, Bonds, Maidenform, and Bali.

Bill Simon, chairman of the Board, HanesBrands, Inc., said, “Following a thorough review of options for the global Champion business with the support of our financial and legal advisors, we are pleased to have reached this agreement with Authentic Brands Group that we believe maximizes value for Champion and best positions HanesBrands for long-term success. Importantly, we believe this transaction will enable the Company to accelerate its debt reduction while positioning HanesBrands to deliver consistent growth and cash flow generation through a focused strategy on advancing its leading innerwear brands and optimizing its world-class supply chain.”

Steve Bratspies, CEO, added, “Today’s announcement is the culmination of significant effort by our teams to position all of our brands on the optimal path for the future. Over the past three years, we have taken necessary actions to enhance the Company’s operations and financial performance – returning to historical gross margins, reducing our cost structure, lowering our debt levels, and generating consistent cash flow. The successful completion of this transaction further simplifies our business, deleverages our balance sheet and enhances the Company’s operations and financial performance. As we begin the next chapter for HanesBrands, we believe we’re in an even stronger position to further extend our leadership in Innerwear, pursue new cost reduction opportunities as we ensure we have the right operating structure in place, and advance our multi-year flywheel to drive strong shareholder returns.”

Transaction Details and Use of Proceeds
The transaction remains subject to customary closing conditions and is expected to be completed in the second half of 2024. Subsequent to the closing, HanesBrands will provide certain transition services for Champion, including operating the business in select regions through a transition period.

HanesBrands expects net proceeds from the transaction of approximately $900 million, including working capital adjustments and other customary transaction costs and excluding the contingent cash consideration. In line with HanesBrands’ commitment to debt reduction, the company will utilize all net proceeds from the transaction to accelerate its reduction of debt and expects meaningful deleveraging on a net debt-to-adjusted EBITDA basis.

On a trailing 12-month basis as of the end of the first quarter 2024, the global Champion business generated approximately $75 million of adjusted EBITDA, which is net of approximately $60 million of stranded costs. The company has specific plans to remove all stranded costs within a year of the transaction closing as it completes the transition of the business.

The company intends to classify Champion as discontinued operations in the second quarter of 2024 and as a result, expects to update its full-year 2024 guidance in conjunction with the release of its second-quarter earnings results.

Goldman Sachs & Co. LLC and Evercore are serving as financial advisors to HanesBrands, and Kirkland & Ellis LLP and Jones Day are serving as its legal advisors.

J.P. Morgan Securities LLC and BofA Securities are acting as financial advisors and Latham & Watkins LLP is acting as legal advisor to Authentic.