Levi Receives Formal Offer for Buy-Out : Proposal Calls for Founding Family to Pay $1.45 Billion
The founding family of Levi Strauss & Co., which last week said it was exploring a plan to convert the San Francisco-based company to private ownership, Monday made a formal bid to pay $1.45 billion in cash for 29 million shares, or 78% of the firm’s outstanding stock.
Robert D. Haas, Levi’s president and chief executive and great-great-grandnephew of the company’s founder, presented the $50-a-share leveraged buy-out offer at a special board meeting held Monday morning. The offer was submitted by HHF Corp., a newly formed company. In a leveraged buy-out, the purchase is financed by borrowing against the company’s assets.
A Levi’s spokesman said the board has appointed a special committee of four independent directors to evaluate the offer. The committee has engaged Goldman, Sachs & Co. as its financial adviser.
According to W. T. Grimm & Co., merger consultants, the buy-out deal will be the largest in the history of the apparel industry.
In trading Monday on the New York Stock Exchange, the jeans company’s stock hit a 52-week high of $47.25 a share before closing at $47.125, up $1.50 on a volume of 281,100 shares.
Family Backs Plan
The buy-out proposal is supported by family members controlling about 36% of the company’s 37.1 million shares outstanding. The Levi’s spokesman said other family members and trusts hold 4% of the stock and have agreed verbally to support the acquisition proposal.
“With the family owning 40%, I don’t see any hitches,” said David Jackson, an analyst at Morgan, Olmstead, Kennedy & Gardner in Los Angeles. “It seems like it should be very easy to do, and I think the price is probably fair as well.”
When Haas disclosed last Thursday that he was exploring a leveraged buy-out at $50 a share, the deal was initially valued at $1.1 billion based on the 22.3 million shares not owned by members of the founding family.
The value of the deal was raised to $1.45 billion because HHF will be buying 6.8 million shares from some family members who elected to take advantage of the $50-a-share offer, according to the Levi’s spokesman. That leaves the family with 8 million shares, of which 7 million have been committed to HHF to support the buy-out effort. The remaining 1 million shares are also expected to go to HHF.
$2 Billion in Financing
As previously reported, the family is being advised by Hellman & Friedman, a San Francisco-based investment banking firm. HHF said it has obtained commitments for more than $2 billion of debt and equity financing. San Francisco-based Wells Fargo Bank is leading a group of banks that will provide the $1.45 billion for the acquisition and an additional $250 million of working capital.
Salomon Bros. will underwrite $300 million of subordinated debt, which will be used to retire the same amount of bank debt after the financing is completed. Levi’s senior managers and the partners and employees of Hellman & Friedman will also have an equity interest of undisclosed size in HHF.
The family group also has arranged a $300-million line of credit that is available to buy shares on the open market or through private transactions and said it reserves “the right to take all actions necessary to prevent a third party from obtaining control of the company.”
The acquisition is subject to a definitive agreement and financing agreements.
Levi went public in 1971. Thanks to a major restructuring and factory shutdowns, it has been making a comeback from a difficult fiscal 1984, when net income plummeted 79% and sales fell 8% from 1983.
