Wonderbra owner Hanesbrands Inc (HBI.N) will spend $547 million to buy rival Maidenform Brands Inc MFB.N, where sales have been flagging, and expand its range of lingerie for younger consumers.
Hanesbrands' all-cash offer of $23.50 per share represents a premium of 23 percent to Maidenform's closing price on Tuesday. Maidenform's shares had closed most of the gap in early trading, while Hanesbrands' were trading at an all-time high.
Hanesbrands said it would fund the purchase, its biggest ever, with a mixture of cash on hand and loans. Chief Executive Richard Noll said Maidenform's brands, which include Lilyette, would fit well with younger, average-figure consumers.
"(They) are very complementary to our brands, such as Playtex and Bali, that fit much better with the over-35, full-figured consumer," Noll said on a conference call with analysts.
Winston-Salem, North Carolina-based Hanesbrands expects the deal to add to its earnings per share within the first full year of completion. Within three years, the company estimates it will add 60 cents per share to annual earnings.
Jawanza Hughes, portfolio manager at Channing Capital Management LLC, said the acquisition price was right "for all parties involved".
"Maidenform is good in average-figure bras and Hanesbrands is good in plus-figure and panties," said Hughes, whose firm owns about 500,000 Hanesbrands shares. "The deal also gives them more scale with retailers."
As well as widening its range of lingerie, the purchase of Maidenform would increase Hanesbrands' reach in shapewear - underwear designed to present a trimmer figure.
"We don't have nearly as strong of a business in shapewear, so we think our ability to tap into their expertise and expand it across our portfolio of brands makes a lot of sense," said Noll.
Hanesbrands will need to turn around flagging sales of Maidenform's brands in U.S. department stores, which prompted the company to warn of a loss of five to 10 cents per share in its first quarter to the end of June.
Rival shapewear products such as Spanx, which opened its first retail store last November, have eaten into the company's market share.
To offset declining sales, Maidenform - formed in 1922 - has said it would consolidate its department store shapewear lines under its brand of the same name.
Maidenform had $600 million in sales in 2012. Before the announcement of the Hanesbrand deal, its stock had fallen 5 percent in the last year while the broader S&P 500 Index .SPX was up 26.5 percent.
The company's biggest shareholder is Franklin Advisory Services LLC with a 10.3 percent stake, according to Thomson Reuters data. The other top shareholders are Royce & Associates LLC and BlackRock Institutional Trust Company.
Maidenform's shares were up nearly 23 percent at $23.39 in early morning trade, while Hanesbrands' shares rose 11 percent to an all-time high of $59.27 on the New York Stock Exchange.
Goldman Sachs gave financial advice to Hanes, while King & Spalding LLP is served as legal counsel.
(Additional reporting by Arpita Mukherjee; Editing by Sreejiraj Eluvangal and Robin Paxton)