VF Corporation has signed a definitive merger agreement to acquire Nautica Enterprises, Inc. The transaction, which is expected to close early in the fourth quarter of 2003, could add approximately $.10 to earnings per share in 2004.

Pursuant to the merger agreement, VF will pay Nautica shareholders $17.00 per share in cash. The Company will also pay approximately $14.6 million, net of tax, to cash out employee stock options, for a total consideration of approximately $585.6 million.

Nautica will continue to maintain its headquarters in New York City and its distribution center in Martinsville, Virginia.

The acquisition is expected to enhance VF’s portfolio and business mix by adding new brands, boosting its presence in department and specialty stores and providing the company with a strong new entry into the sportswear category. Nautica’s sales in fiscal 2003 were $694 million.

Mackey J. McDonald, chairman and chief executive officer of VF, said, “Today marks an exciting milestone for both VF and Nautica. VF will gain a powerful lifestyle brand that extends across multiple product categories, including men’s sportswear and jeanswear, in addition to a broad array of licensed categories including men’s tailored clothing, dress shirts, accessories, women’s swimwear, fragrances, eyewear, watches and home furnishings. It also provides additional diversification to our business mix by strengthening our presence in department stores. At the same time, Nautica will benefit from VF’s superior supply chain, inventory and brand management capabilities.”

“We are thrilled to be joining forces with VF, a company that is a great fit for us as we share similar values, integrity and culture,” said Harvey Sanders, chairman, president and chief executive officer of Nautica Enterprises, Inc. “I look forward to working closely with Mackey and his team as we transition our business to become part of a larger organization that will afford us the leverage to grow our various businesses and move forward. We believe this transaction shows our commitment to returning to our shareholders enhanced value on their investment.”

David Chu, vice chairman of Nautica Enterprises, Inc., will assume responsibility following the merger for the Nautica brand, overseeing global design, product development and marketing. “Im excited to be joining forces with such a strong partner and I view this transaction as the best means of maximizing the full potential of the Nautica brand. This year marks Nautica’s 20th anniversary, and I view this transaction as a fitting way to celebrate both the longevity of the brand as well as its bright future. Im personally looking forward to this new endeavor,” he said.

The boards of directors of both companies have approved the merger. The merger is subject to Nautica shareholder approval, receipt of customary government approvals and other customary conditions. In connection with the transaction, VF has obtained commitments from Harvey Sanders and David Chu to vote all Nautica shares owned by them in favor of the merger, representing a total of approximately 10% of the current shares outstanding.

VF has separately entered into an agreement with Mr. Chu to acquire from him his rights to receive 50% of the net royalty income from licensing the Nautica trademark. Under this agreement VF will pay Mr. Chu $38 million upon the closing of the transaction and $33 million on each of the third and fourth anniversaries of the closing. Mr. Chu will also have the right to receive payments in each of the next five years in the event an annual gross royalty revenue threshold is exceeded.

VF Priorities

Commented Mr. McDonald, “We believe Nautica has the potential for significant growth, both in the U.S. and internationally. Our priorities include the following:

  • Stabilize and reinvigorate the Nautica men’s sportswear business under David Chu’s leadership and strong brand vision.
  • Strengthen and grow the Nautica men’s and women’s jeans and Earl Jean businesses, each of which are performing well at retail. These brands will greatly enhance our jeanswear
    presence in department and specialty stores.

  • Identify opportunities to share resources between Nautica’s retail operations and VF’s outlet business.
  • Grow the business and reduce costs so that Nautica can achieve returns in line with our long-term targets of a 14% operating margin and a 17% return on capital within a 3 to 5 year period.
  • Explore the development of a new women’s sportswear line for future launch. Research we recently conducted indicates that women have a strong positive perception of the Nautica brand.

Mr. McDonald noted that the Company will be working with John Varvatos to determine the best plan for the future growth of the John Varvatos branded business.

“We have searched long and hard for the right brand for our portfolio and the right opportunity to enhance shareholder value,” Mr. McDonald continued. “Nautica is it. It provides us with a new platform for profitable growth and were excited about the future potential we see for the brand. Were looking forward to working with the very talented people within Nautica to realize this potential.”

Other Information

VF will finance the acquisition initially through available cash and short-term borrowings. The Company anticipates that with any required borrowings the resulting ratio of debt to total capital would remain below VF’s long-term target of 40%.

The financial adviser to VF was Citigroup Global Markets Inc.