K-Swiss Inc., which has been struggling to adjust to a fashion shift away from its white-on-white Classic models, agreed to be acquired by South Korea retail and fashion giant E.Land World Ltd.
E.Land will acquire all of the outstanding stock of K-Swiss, which also owns the Palladium footwear brand, for $4.75 per share in cash, or a total value of approximately $170 million. The offer represents a 49 percent premium to K-Swiss closing stock price of $3.19 on Wednesday, Jan. 16, the day prior to the announcement. The agreement was unanimously approved by K-Swiss board of directors.
The sale comes after K-Swiss sales had tumbled about 50 percent since 2005 and its shares have plunged 91 percent from its 2006 high as demand for its all-white tennis sneakers cooled down. While it has had some successes establishing itself on the triathlon side, its renewed push into running and tennis on the performance side hasnt been able to offset the weakness in its lifestyle business.
We are excited to enter into this transaction with E.Land as we believe it is in the best interests of K-Swiss and our stockholders, said Steven Nichols, chairman and president of K-Swiss since 1986, in a statement. E.Land has a 30-year record of successfully building a global fashion and retail conglomerate and also shares our culture of valuing associates. I believe that such a platform will provide K-Swiss with the resources and scale to return to its former performance levels and to further maximize Palladiums potential.
Established in 1980 in Korea, E.Land has become one of the largest South Korean conglomerates as well as the countrys largest integrated fashion and retail company. It owns close to 200 brands, largely Korea-based, and operates more than 10,000 stores worldwide, recording approximately US$7.1 billion of revenues in 2011. Its newer businesses also include restaurants, construction and leisure but it also continues to extend its fashion business, including recently establishing a joint venture with Kate Spade in China.
We are thrilled to be adding the K-Swiss and Palladium brands to E.Land Groups portfolio, said SungKyung Park, president of E.Land World. K-Swiss is a well-established international sports brand and we are very excited about the tremendous potential both the K-Swiss and Palladium brands bring to our proven global platform. We look forward to investing in the company and building upon its heritage.
E.Land has owned a license to distribute K-Swiss in its region but has been overall stepping up its investment in the footwear space in recent years. Particularly strong growth has reportedly come from a similar licensing deal for New Balance. It also has licensing deals for Nike Golf, Berghaus and Ellesse.
On the acquisition front, E.Land acquired Italys Lario 1898 in 2011 and Koreas Elcanto last year. It was among the bidders for Collective Brands Inc. last year, and was also in negotiations to acquire Groupe Lafuma, owner of Millet and Lafuma outdoor footwear brands, until negotiations fell apart in November 2011.
The company is particularly expected to help K-Swiss expand internationally. About half of K-Swiss sales come from the U.S., and the other half from Europe and Asia.
By expanding our sports brand business from the U.S. to China and other parts of Asia, we plan to foster K-Swiss into one of the worlds top three sports brands along with Nike and Adidas, an unidentified E-Land official told the Korea Herald.
E.Land World will use existing resources and credit facilities to fund the acquisition and will not need additional external financing for this transaction.
The merger, which is expected to close during the second quarter of 2013, requires the approval of 80 percent of K-Swiss outstanding voting power and applicable regulatory approvals in addition to other customary closing conditions. Certain Class A and Class B stockholders, who collectively hold approximately 75 percent of the voting power of all common stock, have executed agreements to vote in favor of the transaction. Steven Nichols, through his ownership of 93 percent of K-Swiss Class B shares, controls 69 percent of the total voting power.
A K-Swiss spokesperson declined to address whether Steven Nichols or his son and company president, David Nichols, would have a future role with K-Swiss.
Founded by Swiss brothers Art and Ernie Brunner in 1966, K-Swiss debuted its Classic shoe at the Wimbledon tennis tournament that year and stood out as the first leather tennis shoe produced.
In 1986, Steven Nichols, who was formerly VP of merchandise of Stride Rite Corp, led a group that acquired K-Swiss and took it public in 1990. Bringing in advertising to support the tennis brand for the first time, Nichols grew K-Swiss from about $21 million in annual sales in 1986 to a peak of $508.6 million in 2005. Revenues are expected to come in at $200 million this year and 2012 will also mark K-Swiss fourth year of steep losses in a row.
In an internal letter sent to employees on Jan. 16 included in a Securities & Exchange Commission filing, Nichols wrote that the transaction will mark E.Lands first entry into the U.S. athletic footwear market and emphasized how E.Lands extensive resources would strongly support growth for both the K-Swiss and Palladium franchises.
We believe that E.Lands 30-year record of success and our shared culture of valuing contributions from its associates is a perfect fit for K-Swiss, he stated.
While this transaction is a positive event for K-Swiss, we must continue to focus on business as usual, he added. We have ambitious 2013 objectives to achieve so it is critical we do not get distracted from the task at hand. If anything, this only raises the expectations for all of us and the importance of business as usual.
Goldman, Sachs & Co. advised K-Swiss while Morgan Stanley advised E.Land.
