Haas Family Exploring $1.1-Billion Leveraged Buy-Out of Levi Strauss
The founding family of Levi Strauss & Co., the world’s largest apparel maker, said Thursday that it is exploring a possible leveraged buy-out of the 135-year-old San Francisco company for about $1.1 billion in cash.
A spokesman for Levi Strauss said that Robert D. Haas, president and chief executive and the great-great-grandnephew of company founder Levi Strauss, is studying a proposal to buy out the firm for $50 a share. In a leveraged buy-out, the purchase is financed by borrowing against the company’s assets.
The proposal, which has not been formally presented, would return ownership to Levi Strauss’ descendants, who now own 40% of the 37.1 million shares outstanding. The San Francisco firm of Hellman & Friedman is acting as investment adviser to the family, whose lead bank reportedly is Wells Fargo.
Trading in the stock was halted early Thursday because of an order imbalance. The company then asked that trading not resume until it had made “an important announcement,” which came in the form of a cryptic, three-paragraph statement disclosing Haas’ possible plans for a leveraged buy-out.
Stock Hits 52-Week High
Levi stock resumed trading and hit a 52-week high of $47 before closing at $45.50, up $8.50, on a volume of 435,500 shares. Analysts speculated that rumors of the proposal began to circulate Wednesday and helped to push up Levi’s stock price, which closed Wednesday at $37, up $1.50.
“I believe what happened is that rumors began to spread that something was happening,” said David Jackson, an analyst at the Los Angeles-based brokerage of Morgan, Olmstead, Kennedy & Gardner. He said it appeared that Haas “today evidently was not prepared to make a formal leveraged buy-out proposal but was forced into saying what was going on to account for the activity of the stock.”
Jackson and other analysts said the proposed $50-a-share offer is adequate and fair. “I think it was a generous offer,” said Brenda Gall, an analyst at Merrill Lynch in New York. “Up until yesterday (Wednesday), the stock was trading in the mid-30s,” she said.
The announcement was made as Levi appears to be making a comeback from a difficult fiscal 1984, when net income plummeted 79% and sales fell 8% from the year before. Last year, the company closed or consolidated 13 domestic facilities and five overseas. It laid off 6,500 employees, including 5,500 in the United States.
‘Coming Out of the Trough’
As a result of the restructuring, Levi reported that net income in the first half of 1985 was $45.6 million, up 165% from the same period last year despite a 5% dip in sales.
“They are clearly coming out of the trough,” observed Donna Hostetler, director of research at the Los Angeles-based brokerage of Crowell, Weedon & Co. “It is a perfect time to do a leveraged buy-out. What their personal motivation might be, I don’t know.”
Gall at Merrill Lynch said: “My speculation is that the company has been through a tough period and was tired of answering to Wall Street on a quarterly basis, but I am not privy to their thinking.” She added that the company is rich in cash--$227.6 million as of the end of the second quarter--but that it was having trouble finding attractive acquisition prospects.
The company was founded in 1850 by Levi Strauss, a Bavarian immigrant who sold dry goods to gold miners in Northern California. The miners complained of needing sturdy pants, so Strauss took some canvas to a tailor who fashioned it into what became the classic five-pocket blue jean. Strauss later switched to denim. The company went public in 1971.
A spokesman for the Haas family said it is considering a leveraged buy-out for two reasons.
First, he said, “the family believes that management can focus more fully on decisions in the long-term best interests of the company by restoring family ownership.” Because Levi is a publicly traded company, he said, “there is lots of pressure from the financial community and market to generate earnings per share right now. . . . There is pressure to take the eye off the long-term ball in order to realize short-term gains.”
Second, he said, “the family believes that the values and traditions that are such a special part of the company can continue to be part of the decision-making process if the company is restored to family management.”
The family already dominates senior management. Robert Haas, who has been president since 1984 and served as chief executive and in other top positions previously, owns about 1% of the company’s stock. His father, Walter Haas Jr., chairman of the company’s executive committee, owns 8%; his uncle, Peter E. Haas, Levi’s chairman, owns 9%, and his aunt, Rhoda Goldman, owns 4%. Those three, along with Robert Haas, are on the company’s 17-seat board.
Robert Haas’ grandmother, Elise Haas, owns 7% of the company, and another 11% is owned by other descendants.
Levi began buying back its stock in January, 1984, when it made a tender offer to buy 4 million shares at $39 a share. It later purchased an additional 1.2 million shares on the open market.
LEVI STRAUSS & CO. AT A GLANCE In millions, for fiscal years ending in November
1984 1983 1982 Revenue $2,513 $2,731 $2,572 Net Income $41.4 $194.5 $126.6 Per share $1.07 $4.61 $3.05 Employees 37,000 44,000 45,000
First six months of:
1985 1984 Revenue $1,130 $1,190 Net Income $45.6 $17.2