Wolverine, Golden Gate to Split Up Collective Brands in $1.32 Billion Deal

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Topeka, KA and Rockford, MI—Collective Brands will be split up in a $1.32 billion deal where Wolverine World Wide will take over four footwear brands, and private equity firms Blum Capital Partners and Golden Gate Capital will take over Payless ShoeSource and Collective’s international licensing business.

Wolverine and Golden Gate had been rumored to be the top bidders against E-Land Group, a South Korean footwear company. Under terms of the agreement announced today, Wolverine, Blum Capital Partners and Golden Gate Capital will pay $21.75 for each Collective Brands share–a 4.7% premium to the stock’s close on Monday. Including debt, the deal is valued at about $2.0 billion.

“This acquisition is a game-changer for Wolverine shareholders,” said Don Grimes, chief financial officer, on a call this morning to announce the acquisition of Collective’s Performance + Lifestyle Group (PLG), which had $1 billion in revenue last year and will become an operating group of Wolverine.

Wolverine, which owns Hush Puppies, Merrell, Wolverine, Sebago and Caterpillar footwear, will assume control of Sperry Top-Sider, Stride Rite, Saucony and Keds, creating a $2.5 billion global footwear company. Gregg Ribatt, PLG’s ceo, will head the new operating group and report to Blake Krueger, Wolverine chaiman/ceo. PLG will continue to be headquartered out of Lexington, Massachusetts.

“Our company is thrilled to add these four iconic brands to our proven global platform,” Krueger said, noting that the PLG acquisition gives Wolverine “additional horsepower in five of our targeted growth areas – women’s, athletic, casual, kids and retail” and brings “enormous opportunities for domestic and international growth.”

‘A Game Changer’ for Wolverine

Payless ShoeSource and Collective’s international licensing business, which together had sales of about $2.4 billion last year, will now be owned by Blum Capital and Golden Gate.

Wolverine said the deal, which will close later this year, will have a minimal impact on its 2012 results, but is expected to add 25 cents to 40 cents a share to its 2013 earnings.

Meanwhile, Payless ShoeSource and Collective’s international licensing business, Collective Licensing International (LCI), which together had sales of about $2.4 billion last year, will now be owned by Blum Capital and Golden Gate.

While they will operate together as a standalone entity, Payless will remain headquartered in Topeka, and CLI’s headquarters will stay in Englewood, Colorado.

“Payless is exactly the type of company in which we seek to invest—a strong brand with unparalleled global scale at an important inflection point in its evolution,” said Josh Olshansky, a managing director at Golden Gate Capital. Other retail investments by Golden Gate include Eddie Bauer, J Jill, Pacific Sunwear and Express.

The acquisition was unanimously approved by Collective’s board and is expected to close this fall pending regulatory and shareholder approvals.

It marks a successful end to a strategic review that Collective Brand began last fall, one that included plans to close some 475 under-performing Payless and Stride Rite outlets.

In its fourth quarter earnings report released in February, Collective Brands reported it swung into net loss of $41.6 million, which included one-off charges related to store closures and other expenses. Revenues rose 3.6% after adjustments, while comparable store sales increased 1.7%, helped by a 1.6% gain at Payless’ U.S. stores.

Payless ShoeSource Inc. became Collective Brands after acquiring Stride Rite Corp. in 2007. The company’s retail operations, which included about 3,500 Payless stores in the United States alone, accounted for about 78% of revenue, according to a filing with the Securities and Exchange Commission. The balance came from its wholesale business, which included Saucony, Sperry Top-Sider, Stride Rite and Keds brands.



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