Given Quiksilvers fairly late decision to pull out of the recent Actions Sports Retailer show, it was predictable that there was talk on the show floor about the health of the brand – and the health of the show. Perhaps the meatiest rumor circulating on the ASR show floor was the conversation about a break-up of the action sports giant weighted down by debt after a disastrous short-lived romance with Rossignol.
Based on the talk picked up by Sports Executive Weekly (but not confirmed by any of the parties), Steve Murray may be wasting no time at the helm of the recently announced Action Sports Americas coalition at VF Corp. The talk on the floor centered on a potential acquisition of the DC business by VF Corp., which would eliminate for Quiksilver the one business that is generating some energy right now.
Quiksilver, Inc. has clearly opened to flood doors on the DC brand, grabbing big chucks of market share, primarily in the family footwear channel as they open up distribution to more retailers. According to retail point-of-sale data compiled by SportScanINFO, DC has seen share in the mid-tier family retailer segment jump nearly 27 full points over the trailing 52-week period from just a 7.5% share in the prior year period. That share growth has come at the expense of VF Corp.s Vans brand, Nikes Hurley brand and JSSIs Sneaux line.
The Orange County Business Journal noted that there's also “gossip” that Quiksilver rejected an investment or buyout offer from Nike Inc. Others report the NKE offer was contingent on the divesture of the DC business.
If such a deal does close, DC would join market share leader Vans and the Reef brand in the newest VF Corp, coalition. Acquisitions were clearly expected when the split of the former Outdoor Coalition was announced, but the quick timing here took some by surprise.
“With VF Corp.s direct-to-consumer strategy a key component of the companys growth plan, the addition of brands to round out an in-house action sports format would seem to make sense,” said James Hartford, chief market analyst for The SportsOneSource Group, which publishes this newsletter.
Quiksilver hired Morgan Stanley last year to help it raise money to alleviate its debt load. Although the company said it was looking to expand borrowing with existing lenders or find a private equity investment, it was also exploring the sale of all or part of its assets. Quiksilver had $1 billion in short- and long-term debt as of Oct. 31.
In a Company Flash report published over the weekend, Citi Investment Research saw a potential deal as a positive for VF Corp, and reiterated its “buy” position on the company and speculated that VFC would likely see “an attractive price as a result of market valuations and ZQKs balance sheet.”
“DC is probably the companys most valuable property and selling it could bring in some much needed cash to pay down debt and put Quiksilver in a stronger financial position,” quipped Wedbush Morgan Securities analyst Jeff Mintz in an interview with the OBBJ.
