Jeans Maker VF Corp. to Acquire Nautica

VF Corp., the world’s largest jeans maker, Monday said that it agreed to buy designer Nautica Enterprises Inc. for about $586 million, expanding into brands sold in upscale department stores.

Nautica, known for preppy, all-American styles that compete with those of Tommy Hilfiger Corp. and Polo Ralph Lauren Corp., also owns the pricey Earl Jeans brand.

Greensboro, N.C.-based VF, with brands including Lee and Wrangler, already dominates the market for jeans sold in discount stores and mid-tier department stores. This acquisition gives it entree to the luxury market with Earl jeans, which sell at retail for more than $100.

VF, which also makes Vanity Fair lingerie and North Face outerwear, said it would pay $17 a share in cash for Nautica plus an additional $14.6 million to cash out stock options.

Shares of New York-based Nautica rose $3.59, or 27%, to $16.78 on Nasdaq. VF shares rose $1.55, or 4.6%, to $35.59 on the New York Stock Exchange.

VF Chief Executive Mackey McDonald said the company would focus initially on stabilizing the menswear business.

Nautica, along with Tommy Hilfiger, has been losing market share in department stores, which are making room for new brands in an attempt to compete with discounters. The men’s sportswear market has become particularly crowded.

VF said it had not decided what to do with Nautica’s John Varvatos unit, which produces a high-end menswear collection by designer John Varvatos, a Nautica director.

Nautica last month said it was in merger talks, as it contended with a dissident investor group trying to unseat two of the company’s directors.

Analyst Jennifer Black of Wells Fargo Securities in a research note said the deal should be positive for Nautica shareholders, based partly on her belief that the brand has been subjected to “serious degradation.”

Some analysts had speculated previously that Nautica’s acquirer might move the brand to the discount channel, but McDonald said that was not VF’s intention.

“We’re not planning to take it down in distribution,” he said. “One of the primary reasons for the acquisition is to better penetrate the better department store channel.”

VF said the acquisition could add about 10 cents to earnings per share in 2004.

VF said it also would pay Nautica’s vice chairman, David Chu, for his rights to 50% of the royalties that come from licensing Nautica’s trademark.

VF expects the deal to close early in the fourth quarter. The boards of both companies have approved it.