Jones Apparel in $885-Million Deal to Buy Nine West
Ending a week’s worth of rumors, Jones Apparel Group Inc. announced late Tuesday that it is buying Nine West Group Inc. for about $885 million, or about $26 in cash and stock for each of Nine West’s common shares.
The purchase would give mid-price clothing maker Jones a major foothold in the shoe business. Stamford, Conn.-based Nine West sells one in every five pairs of shoes sold to women in the U.S. at prices generally between $50 and $90.
But the shoe company has had its problems. After a 45.7% drop in earnings for its third quarter, sending profit down to $18.8 million from $34.6 million a year earlier, it announced it would close 100 stores and factories in Indiana and the Caribbean.
Nine West was also hit earlier this year by a federal class-action suit claiming it and several large department store chains kept prices artificially high for years on 12 brands of shoes.
The suit claimed Nine West threatened to cut off supplies to retailers who would not adhere to its price minimums. The shoe maker is also under investigation by the Federal Trade Commission on price-fixing allegations.
Bristol, Pa.-based Jones, meanwhile, has been acquiring companies and licenses, adding Sun Apparel last year--with its Polo, Todd Oldham and Sassoon jeans lines, in addition to a private-label arsenal. Jones Apparel, led by Chairman Sidney Kimmel, previously said it was looking to buy additional licenses under which it could produce clothes and accessories. Its most recent earnings statement had income up 34% to $32.1 million.
Jones put the value of the Nine West acquisition at $1.4 billion, including the assumption of the shoe company’s debt. Jones agreed to pay $13 in cash and 0.5011 of a Jones shares for each Nine West share.
Nine West shares last traded at $22.81 and have risen 38% in the last two weeks on buyout speculation. Jones Apparel traded Tuesday at $25.94. Trading in both stocks was halted on the New York Stock Exchange Tuesday after a report circulated that the deal was to be announced.
Analysts said the move was in line with Jones’ goals of adding new labels to its line. But it also takes the company in a new direction, because Nine West makes most of its own products while Jones relies on contractors.
“It’s taking on a different territory, but Jones, like any other company, has growth aspirations,” said Richard Giss of Deloitte & Touche’s retail services group in Los Angeles. “And this takes them in a new direction--they know how to consolidate companies.”
Jones Apparel designs and markets under the names Jones New York, Evan-Picone, Rena Rowan and Saville. Its licensed brands include Polo Ralph Lauren’s, Lauren by Ralph Lauren and Ralph by Ralph Lauren.
Nine West’s shoes, sold to more than 7,000 shoe departments and stores, include the moderately priced Nine West, Amalfi, Bandolino, Luca B. for Calico, 9 & Co., Pappagallo, Pied a Terre, Selby, Westies and Shoe Studio Group Limited, in addition to licensed brand C/K Calvin Klein.
That sort of broad compilation of brands is to be expected, Giss said, as retailers increasingly demand the kinds of concessions that only the largest companies can provide.
“Apparel has been consolidating for quite a while. It is very difficult to not have real scale in the industry today,” Giss said. “Retailers are demanding a consolidation, and that’s because they are only going to buy from a certain number of companies who can meet their requirements of price, style and compliance with regulatory issues, and that generally requires more scale than a lot of companies have.”
Mark J. Schwartz, president and chief executive of Palladin Capital Group Inc. and a member of Jones’ board of directors, will become chairman of Nine West. That company’s current chairman, Jerome Fisher, a co-founder, will become a consultant; the other co-founder, CEO Vincent Camuto, will “continue to be actively involved with the company,” according to a merger announcement.
