By Andy Kerrigan
Last month, Manhattan Beach, CA-based Skechers USA Inc. made an unsolicited offer to pay $142.8 million for Heelys Inc., but the struggling wheeled sneaker maker rejected the offer as being too low.
Skechers reports that it had initially made a bid ranging from $4.75 to $5.10 per share to acquire Heelys on May 28 of this year. On August 13, it raised that bid to $5.25. According to Skechers, its second offer represented a 21 percent premium to Heelys stock price as of May 27, and an 8.2 percent premium to Heelys stock price as of August 12.
In rejecting the second bid, Heelys chairman Gary Martin states, “The board believes the $5.25 offering price does not reflect the value of Heelys and that entering into discussions with Skechers based on their unsolicited proposal is premature at this time.”
John Shanley, an analyst at Susquehanna Financial Group, believes that although Heelys appears willing to entertain higher offers, he questions Skechers move to acquire “what is currently a challenged brand.” He also notes that Skechers still has ample expansion geographically with its core brands, and promising growth opportunities with its sub-brands that include Marc Ecko, Punk Rose, and Zoo York.
“If anything, we believe Heelys needs a partner, like Skechers, to build a more stable and diversified global product platform,” says Shanley.
Matt Powell, senior retail analyst with SportsOneSource, points out that Heelys could benefit from Skechers heavy penetration in the mid-market channel, where the skate brand is currently seeing its best successes. Heelys could also grow through Skechers international distributors, as well as with its many company-owned stores.
But Heelys, under a largely new management team led by CEO Don Carroll, may want to pursue its own turnaround strategies. In addition, Heelys had $96.8 million in cash on hand at the end of the second quarter. In effect, Skechers would have paid only about $46 million for the business.
In the second quarter, Heelys lost $400,000, or 4 cents per share, against earnings of $12.8 million, or 45 cents per share, a year ago. Revenues tumbled 75.5 percent to $18.2 million from $74.3 million a year ago. The stock had traded as high as $40 in February 2007.
This was not Skechers first attempt to acquire the Heelys business. In publicly disclosing the most recent bid, Skechers chairman and CEO Robert Greenberg says his company “carefully considered a potential transaction with Heelys prior to its December 2006 initial public offering. We were then, and continue to be today, impressed by Heelys strong brand and proprietary technology.”
