VF Corp. chairman & CEO Mackey J. McDonald breathed a sigh of relief as the agreement to purchase Nautica was finalized on July 7th.
“We have been interested in this for a number of years”, he said during a conference call with analysts. He went on to say that nothing short of “material changes can prevent the deal.”
The parent company of The North Face, Eastpak and Jansport will pay Nautica shareholders $17.00 per share in cash in a total deal worth roughly $586 million. The company will also pay approximately $14.6 million, net of tax, to cash out employee stock options. Nautica’s fiscal 2003 sales were $694 million.
VF Corp.s CFO, Robert Shearer, stated, “Separate from the purchase of the business, we also announced that we are buying David Chus rights to receive 50% of Nauticas net royalty income from licensing (we) will essentially be reporting double the amount of royalty income that would otherwise have been reported.”
VF will pay Chu, Nauticas vice chairman, $38 million upon the closing of the transaction and $33 million on each of the third and fourth anniversaries of the closing. Chu will also have the right to receive payments in each of the next five years if an annual gross royalty revenue threshold is exceeded.
When asked if the 58% premium paid for the Nautica stock was too much, McDonald replied, “Its all about the assumptions that weve made relative to the acquisition, and obviously those assumptions support that type of price.”
VF does not plan to make Nautica more of a bargain brand. McDonald said, “We are not planning on taking Nautica down in distribution.”
>>> The only way this deal makes sense is to take Nautica down market…
