Warnaco Ends Bid to Merge With L.A. Firm
Warnaco Group Inc. and fitness-wear maker Authentic Fitness Corp., which spun off from Warnaco six years ago, said Thursday that they had dropped an agreement to merge after it became clear Authentic Fitness would report a loss in its fourth fiscal quarter.
The companies said the results for fiscal 1996 ended June 30 would fall below Wall Street analysts’ expectations, due in large part to the loss of a major customer, Herman’s sports stores, which filed for bankruptcy in May.
Los Angeles-based Authentic Fitness, whose products include Speedo swimsuits, agreed to terminate the agreement after being advised by Warnaco’s board that it would not recommend the merger to its shareholders and that it was extremely unlikely they would reconsider their position, the companies said.
Early last month, New York-based clothing company Warnaco, which spun off Authentic Fitness to investors in 1990 for $85 million, offered to acquire the company in a stock swap valued at about $500 million.
But the deal ran into opposition, most notably from Pentland Group, which owns a 23% stake in Authentic Fitness, and Pentland’s chairman, Stephen Rubin.
Warnaco increased its initial offer of 0.725 of a Warnaco share for each share of Authentic Fitness stock to 0.82 of a share, but Pentland’s board on July 15 said it would vote against the offer and Rubin resigned from Authentic Fitness’ board in protest.
Linda Wachner, who heads both Authentic Fitness and Warnaco, said Warnaco’s board “agreed that while the strategic logic of a business combination between Warnaco and Authentic Fitness makes sound strategic sense, it must be done only on a prudent and responsible financial basis.”
Authentic Fitness said its sales for the fourth fiscal quarter and into early July were softer than expected. It said fiscal 1997 will be profitable but lower than current Wall Street estimates.
The company stated Authentic Fitness said it believes the impact of Herman’s selling unsold Speedo inventory at deep discounts accounted for a drop in demand and that once the inventory is sold, sales volume will improve.
Warnaco said its sales and earnings were in line with analysts’ expectations.
Warnaco stock rose $2.75 to $25.25 and Authentic Fitness plunged $6.25 to $12 on the New York Stock Exchange.
Warnaco’s products include Olga bras, Hathaway shirts, Chaps by Ralph Lauren sportswear and Calvin Klein men’s underwear and women’s lingerie.
In addition to Speedo swimsuits, swim accessories and fitness wear, Authentic Fitness’ products include Oscar de la Renta fitness wear and White Stag ski clothes and swimsuits.
