Innovo to Buy Azteca Division

Innovo Group Inc., a City of Commerce-based apparel designer that owns the trendy Joe’s Jeans brand, is looking to add another client to its growing private-label collection.

Innovo agreed to buy privately held Azteca Productions International Inc.’s Blue Concepts division, which distributes mostly bluejeans to retailer American Eagle Outfitters Inc.

American Eagle, which sells its branded casual men’s and women’s apparel at its 704 stores in the U.S., would become Innovo’s biggest private-label customer. Innovo also designs some of the apparel under the Mossimo label sold at Target Corp. stores and sells items to Wet Seal Inc. and to Limited Brands Inc. for its Express stores.

Under the deal announced Thursday, Innovo would pay Los Angeles-based Azteca $21.8 million on a seven-year promissory note valued at $9.3 million plus the issuance of 3.125 million shares at $4 each. The transaction must be approved by the companies’ boards.

The purchase price could be reduced if sales to American Eagle dip below $65 million over the next two years. Blue Concepts had $75 million in revenue for its fiscal 2003 ended in January. American Eagle is Blue Concepts’ largest customer.

“We hope and expect the business to go well, but ... there is a possibility that there are things out of our control that could result in sales declining,” Innovo Chief Executive Jay Furrow said. “If that’s the case, we’ve got provisions to protect the company against the financial downsize as a result of reduction in sales.”

As part of the transaction, Innovo will pay Azteca Productions 2.5% of sales to American Eagle. Azteca will turn over Blue Concepts’ customer lists and current purchase orders to Innovo. About 20 Blue Concepts employees will join Innovo, Furrow said.

Azteca executives did not return calls seeking comment.

Innovo had sales of $11.9 million in its fiscal first quarter ended March 1. Its shares rose 33 cents to $4.38 on Nasdaq.