NEW YORK VF Corp (VFC.N), owner of the North Face clothing brand and chain, is buying footwear maker Timberland Co TBL.N for $2 billion to boost sales of outdoor gear, its biggest business.
The deal will help VF "build the premier portfolio of outdoor brands," Chief Executive Eric Wiseman told investors on Monday on a conference call, noting that Timberland was at the top of a short list of targets VF drew up a year ago.
The deal values Timberland at $43 a share, a 43 percent premium to its closing price of $29.99 on Friday on the New York Stock Exchange.
Outdoor clothing, such as fleece vests and hiking pants, was VF's fastest growing segment last quarter, with sales up 16 percent. The Timberland deal will complement that by vastly beefing up VF's offerings of items such as hiking boots and sandals. Footwear accounts for 75 percent of Timberland sales.
Wiseman told Reuters that VF was open to buying other outdoor brands, particular those with strong international and online businesses. "We're not done," he said.
VF's brands and store chains run the gamut from high-end lines such as John Varvatos and 7 For All Mankind to moderately priced lines such as Lee and Wrangler jeans.
But outdoor gear is at the heart of the company's growth strategy. Earlier this spring, Wiseman said he wanted outdoor gear to surpass 50 percent of sales by 2015. On Monday, he raised that threshold to 60 percent.
VF expects the deal, approved unanimously by the boards of both companies, to give earnings an immediate lift. It forecast an extra 25 cents in earnings per share in 2011 and 75 cents in 2012, including deal-related expenses.
Timberland will add $2 to annual earnings per share by 2015, and add about $700 million to VF's 2011 revenue, VF said.
The companies expect the deal to close in the third quarter.
VF shares rose 9.4 percent to $100.43 in afternoon trading, while Timberland shares were up 43.3 percent to $42.98.
HELPING TIMBERLAND MARGINS
Stratham, New Hampshire-based Timberland, with its namesake label and brands such as Mountain Athletics and SmartWool, expects 2011 revenue of $1.6 billion, more than half of it generated internationally.
Before the deal was announced, Timberland shares had plummeted 34 percent from a 12-month high of $45.50 in early May, when the company reported results well short of Wall Street estimates and said it expected pressure on margins from rising leather, transportation and labor costs.
"The price is fair," Susquehanna analyst Christopher Svezia said. "At first blush, it seems a bit expensive, but I think Timberland is definitely on the upswing in terms of their business."
Wiseman said VF's infrastructure overseas, where it gets 30 percent of its sales, would help lift Timberland's sales 10 percent annually.
Wiseman told Reuters that VF's expertise in clothing would help Timberland to make its apparel more "relevant" and therefore more profitable.
But he told investors it would take five years for Timberland operating margins to match those of VF, which is targeting a companywide operating margin of 15 percent by then.
VF plans to finance the acquisition through a combination of cash on hand, commercial paper and term debt.
Timberland can solicit higher bids until July 26. Timberland said in a regulatory filing it would pay VF a termination fee of $87.2 million fee if it opts for a better bid.
Law firm Ropes & Gray advised Timberland on the deal.
(Additional reporting by Viraj Nair in Bangalore; Editing by Lisa Von Ahn, John Wallace and Steve Orlofsky)