In classic Warren Buffett tight-lipped fashion, in-depth details of the announced merger of Russell Corporation into Buffetts Berkshire Hathaway Inc. were scarce. Based on a release issued last Monday by RML, Berkshire Hathaway will acquire Russell Corporation for $18.00 per share in cash, which would equal roughly $597 million, or 33% premium over the closing share price last week. RML shares quickly ran up to over $18.00 by the end of the day.
The Merger Agreement contains a provision that would require RML to pay a $22 million termination fee under certain circumstances.
BHI will also assume about $400 million to $500 million in RML debt in the deal. Long-term debt was pegged at about $400 million at year-end. The deal is expected to close in the third quarter this year. The ability to re-finance the debt under Berkshire Hathaways AAA credit rating is expected to free up considerable operating capital.
It will be interesting to see if Russell Corp. will be left alone or if BHI will quickly assess the opportunities to gain synergies with its other operating groups. While there have not been many moves to merge acquired companies, the opportunities for the brands under the RML umbrella may have BHI taking a second look.
This acquisition brings together a number of interesting partner companies in the expanding Berkshire Hathaway portfolio. Russell would become a sister company to rival Fruit of the Loom and also brings Brooks Sports together again with H.H. Brown, which Buffett acquired in 1994.
Buffett knows apparel and textile companies well. Berkshire Hathaway was first acquired by Buffett as a textile company for $8.00 a share and the company, which is now just a holding company with just 17 employees, trades at more than $86,000 a share. Buffett closed down the last of the Berkshire Hathaway plants in 1985. He bought Fruit of the Loom out of bankruptcy in 2002 after shares plunged to around a dollar a share.
The Brooks Sports / H.H. Brown relationship goes back more than 20 years when H.H. Brown was Brooks sourcing agent.
H.H. Brown currently owns the Dexter and Born brands and markets boots under the Brunswick, Browning, Acme, and Beretta brand names. BHI also owns Justin Boot, which is a separate entity.
The deal also brings former Bike Athletic execs Jim Corbett and Phil Johnson back under the same parent company with Russell, with Bike sitting under the RML umbrella and the two now running the sports apparel business at Fruit of the Loom.
There is no doubt Brooks can benefit from the economies of scale that will now be available to it under the new structure. How Russell and FOL work together will also be watched as the two companies coordinate sourcing and production capabilities. BHI also owns Garan, Inc., which primarily makes childrens apparel, and Fechheimer Bros., which makes duty uniforms.
>>> Interesting that just last week Julio Barea “retired” as CEO of Russell Corp.s activewear business, which is primarily responsible for the Caribbean production and sales of blank tees and fleece
>>> There appears to be more questions than answers for many of the execs at Russell and subsidiary companies…
