Management-Led Group Would Spin Off Apparel Unit : Playtex Agrees to $1.3-Billion Buyout Proposal

Privately held Playtex Holdings Inc. said Wednesday that it has agreed to a $1.3-billion management-led buyout and plans afterward to spin off its apparel division.

Playtex Holdings will be acquired by an investor group led by Chairman Joel Smilow and Thomas H. Lee Co., a private Boston-based investment firm, the company said in a statement.

The buyout offer consists of $9.60 in cash and preferred stock worth $1 for each of the company’s 50 million outstanding shares, a $530 million transaction.

Playtex will then acquire or otherwise redeem its $630 million in outstanding debt and $150 million in preferred stock, for a total of $780 million, Smilow told Reuters.

Including fees, the total price tag comes to $1.35 billion, the company said.

Once Playtex Holdings is bought out, Smilow said, it will spin off Playtex Apparel Inc. for $380 million to a group consisting of Smilow and Apparel’s operating management, Playtex said. The sale will create two separate companies, both principally owned by management.

Smilow led the $1.25-billion leveraged buyout of International Playtex Inc. in December, 1986, when Beatrice Cos.--Playtex’s then-parent--began selling off subsidiaries to reduce its debt. Smilow, whose stake in the company was small, kept the apparel and family products divisions, but sold off the Max Factor & Co. cosmetics line to Revlon Inc.

Investors at that time paid $10 million for the common stock in the company, compared to the $530 million Smilow is paying today for that part of the buyout, the chairman said.

Smilow said the new companies are considering several small purchases and joint ventures, but said he could not disclose details.

The $340 million in after-tax earnings expected from the sale of the apparel unit will reduce the cost of the buyout and allow Playtex Holdings to concentrate on its non-apparel lines--Jhirmack hair care products, tampons, gloves, and nursing products, the company said. Playtex Holdings last year reported an operating profit of $154.8 million on sales of $614.4 million. The apparel unit earned $46.4 million on sales of $310.4 million.

“We thought it was the appropriate time to make this transaction,” Smilow said. “We intend for the two companies to grow by means of internal development and strategic acquisitions in the coming months.”

The two transactions are subject to the execution of definitive agreements, completion of financing arrangements and obtaining any necessary approvals.

Thomas H. Lee Co. has participated in more than 60 management-led buyouts, Playtex said.