Claiborne sheds brands to cut debt; shares soar

A Liz Claiborne hang tag is shown on a woman's blouse in Burbank, California May 13, 2008.

(Reuters) - Liz Claiborne Inc LIZ.N plans to sell its namesake brand and other lines and slash its debt by nearly two-thirds, sending it shares up as much as 42 percent on Wednesday by calming investor concerns about its debt load.

The company said it is selling its Liz Claiborne and Monet brands to J.C. Penney Co Inc (JCP.N) for $267.5 million, one in a slew of deals in recent months.

It will concentrate on its Juicy Couture, Lucky Brand and kate spade retail brands and is looking into a new company name to reflect that strategy.

Claiborne has not reported a profit since 2006.

Chief Executive William McComb, who took the reins in late 2006, said the company will have a more appropriate debt load, considering the risk of another recession in the United States and Europe.

"We need to bring down our debt and thereby 'de-risk' our company," he told Wall Street investors on a call.

Last month, Claiborne said it was selling most of its money-losing international Mexx business to a joint venture with Gores Group, and in August announced it would sell the trademarks on some of its perfumes, including Curve, to Elizabeth Arden Inc (RDEN.O), also to lower its debt.

It earlier sold its Dana Buchman brand to Kohl's Corp

(KSS.N).

All told, these deals will bring in $471 million, which Claiborne will use to shed about 62.2 percent of its net debt, which stood at $741.6 million as of July 2. The debt issue has long weighed on the company's stock.

"With all that's going on in the economy, it's hard to make a solid investment case for such a leveraged company," KeyBanc Capital Markets analyst Edward Yruma told Reuters.

S&P Capital IQ analyst Jason Asaeda raised his target on Claiborne shares by a dollar, to $7.50.

The company still faces some challenges. McComb said comparable sales at Juicy Couture were down again in September, falling 5 percent, based on a preliminary tally. But they were up at Lucky Brand and kate spade.

The cost of insuring debt issued by Liz Claiborne against potential default fell sharply Wednesday. It cost $663,000 a year to insure $10 million of debt for five years, down from $880,000 a year on Tuesday, according to Markit.

Claiborne shares were up $1.91, or 37.4 percent to $7.01 in afternoon trade. Earlier they rose as high as $7.25.

SHEDDING NAMESAKE BRAND

Penney, which has said in recent results reports that sales of the Liz Claiborne line have been strong, has had the exclusive licensing rights to the brand since August 2010.

Their deal gave Penney the right to buy the Liz Claiborne brand outright at certain dates.

Penney will then license back the Liz Claiborne New York and Lizwear trademarks to Claiborne without collecting a royalty.

The department store chain expects to become the exclusive store with Monet by August 2012.

Claiborne is also selling smaller brands like Kensie, Kensiegirl, and Mac & Jac.

The company will also end its licensing deal for DKNY Jeans with designer Donna Karan International, part of French luxury conglomerate LVMH (LVMH.PA), a year early, effective January.

Claiborne expects net debt at the end of fiscal 2011 to be between $270 million and $290 million.

As a result of all these transactions, Claiborne lowered its adjusted EBITDA forecast for fiscal 2011 to a range of $80 million to $90 million, from $100 million to $120 million previously.

(Reporting by Phil Wahba in New York; Editing by Derek Caney, Dave Zimmerman and John Wallace)