Saucony, Inc. has entered into a definitive agreement with The Stride Rite Corporation under which Stride Rite has agreed to acquire Saucony. Stride Rite will pay $23 in cash for each share of Class A and Class B common stock of Saucony. Based on the number of shares of Saucony common stock outstanding and the net option value as of May 31, 2005, the transaction value is approximately $170 million.
Existing cash at Saucony brings the net transaction value to approximately $140 million.
The price represents a 19% premium to the average of the Class A and Class B common stock closing prices on June 1, 2005, or $19.32, and a 17% premium to $19.60 which is the average of the last four weeks' closing prices of Saucony's Class A and Class B common shares. All outstanding options for Saucony common stock, whether or not vested, will be cashed out in the merger based on the $23 per share purchase price.
Combining Stride Rite's $558 million in 2004 sales with Saucony's $167 million in 2004 sales will create a company with pro forma combined revenues of approximately $725 million. The acquisition is expected to be accretive to Stride Rite's earnings and cash flow in 2006 before one-time costs, with significant cost savings through reduced public company and executive costs, and other operational synergies.
Annual cost synergies of approximately $6-8 million are expected to be fully realized by fiscal 2007. Stride Rite intends to finance the acquisition with cash on hand, Saucony's existing cash of approximately $30 million, and borrowings under a new credit facility led by Bank of America, N.A. Stride Rite will be conservatively leveraged at less than two times cash flow, and is expected to generate significant free cash.
The transaction is expected to close in the summer of 2005 and is subject to regulatory approval, approval by the holders of at least two-thirds of Saucony's Class A shares and the holders of at least two-thirds of Saucony's Class A and Class B shares voting together as a single class, and other customary closing conditions.
“We are delighted to add Saucony to our portfolio of nationally recognized brands in a transaction we expect to be accretive in 2006 and beyond,” said David M. Chamberlain, Stride Rite's chairman and chief executive officer. “Saucony is a well-known technical brand with loyal customers and solid growth prospects. This transaction combines two leading footwear companies with strong balance sheets and cash flows, similar corporate cultures, and shared roots in the greater Boston area dating back to the early 1900s.”
Chamberlain continued, “Saucony is an ideal brand for take-down sales to the children's market, where performance footwear constitutes approximately 50% of total sales for children ages nine and under. Acquiring Saucony will provide an entree for Stride Rite in the growing athletic specialty and sporting goods channels, adding greater channel balance to Stride Rite's sales. Additionally, we expect that Stride Rite's strength in department stores and national chain accounts will help Saucony expand to its full potential. The acquisition will double our international sales and provide critical mass for growth of all of our brands in Europe and worldwide. Saucony will also enhance Stride Rite's athletic development, sourcing capabilities and leverage for our Stride Rite, Tommy Hilfiger and Sperry Top-Sider brands. We look forward to welcoming the talented Saucony employees to our Stride Rite family.”
Saucony President and Chief Executive Officer John Fisher said, “This morning's announcement of the merger agreement between Saucony and Stride Rite is the culmination of our strategic alternative review process announced last August. We believe that this transaction maximizes value for Saucony shareholders. In addition, we are convinced that Saucony has found the correct acquirer to expand our market presence and accelerate the growth of our businesses. We believe that Stride Rite's and Saucony's complementary strengths will provide a stronger platform for growth and profitability. We thank our shareholders for their patience during our review process and look forward with enthusiasm to becoming part of the Stride Rite family.”
Mr. Fisher and Charles Gottesman, Executive Vice President, Business Development, of Saucony, as well as members of their respective families and trusts and other entities through which Messrs. Fisher and Gottesman beneficially own or have sole or shared voting power with respect to shares of Saucony common stock, have agreed, pursuant to a voting agreement with Stride Rite, that they will vote all of their shares in favor of the transaction at the meeting of Saucony shareholders. The individuals, trusts and other entities signing the voting agreement own approximately 49% of the outstanding shares of Saucony Class A common stock and approximately 25% of the outstanding shares of Saucony Class A common stock and Class B common stock, taken together as a single class. If the merger agreement is terminated, the voting agreement also terminates.
Lane, Berry & Co. International, LLC acted as financial advisor to Stride Rite in connection with this transaction and rendered a fairness opinion to Stride Rite's Board of Directors. Goodwin Procter served as legal advisor to Stride Rite.
Chestnut Securities, Inc. acted as financial advisor to Saucony in connection with the transaction and delivered a fairness opinion to the Saucony board of directors. Wilmer Cutler Pickering Hale and Dorr LLP served as legal advisor to Saucony.
