Quiksilver Inc. caught a monstrous wave Monday as Wall Street bet that the Orange County surf wear company could get snapped up by sportswear giant Nike Inc. Shares of Quiksilver jumped more than 46%.
Although a deal would bolster Nike's position as the world's leading athletic brand, for Huntington Beach-based Quiksilver it would be an abrupt shift that probably would have been avoidable in a better economy, analysts said. The company announced Monday that it would eliminate 200 positions to cut costs.
"If times were better, I think they wouldn't have to think about doing this at all," said Jeff Mintz, an analyst with Wedbush Morgan Securities in Los Angeles. "Quiksilver is definitely interested in potentially doing some kind of deal."
A possible sale could happen in one of two ways, he said. Nike could buy the entire company, or Quiksilver could sell its DC brand division to apparel company VF Corp., whose brands include Vans and the North Face, and offer the rest of its assets to Nike.
Cindy Knoebel, a VF spokeswoman, said the company was "acquisition-minded" but declined to comment specifically on a Quiksilver deal.
"We're always interested in acquisitions," she said. "Having said that, given the current environment, a near-term priority for us is maintaining our balance sheet and our liquidity."
A spokesman for Nike also declined to comment, and Quiksilver executives did not return calls. The potential deal was first reported Friday by trade magazine Women's Wear Daily.
Separately, Quiksilver said Monday that the 200 positions being eliminated companywide were part of a cost-cutting plan. The company said the cuts were expected to reduce expenses by about $40 million annually.
Quiksilver has struggled to regain its footing after a short-lived and tumultuous venture into the ski-equipment business.
The company announced in 2005 that it was buying Rossignol, a winter sports company, in a deal valued at $320 million in cash and stock. The purchase was supposed to help Quiksilver extend its reach as an action sports company, but analysts quickly voiced concerns that the pairing was a mismatch and that Rossignol would slow Quiksilver's steady growth.
Quiksilver decided to close the division last year, announcing in August that it had reached an agreement to sell the flagging winter sports equipment division to Chartreuse & Mont Blanc in a deal valued at $147 million.
But before Quiksilver could recover completely from the Rossignol chapter and return to its roots as an apparel and footwear maker, the retail environment took a turn for the worse.
"They got Rossignol off their books, but in the whole scheme of the transaction, they lost a lot of money," said Claire Gallacher, a retail analyst at Caris & Co. "It was still good to get rid of it, but now they're facing some of the worst consumer spending trends in many years."
She added that Quiksilver could have its back "against the wall" and be forced to put itself up for sale if it was unable to restructure or renegotiate its significant amount of debt.
Although Nike and Quiksilver seem to have very different core bases, analysts said the two companies were surprisingly well-matched. Both companies are known for sponsoring many prominent athletes, and Nike has made a push into the action sports market with its 2002 purchase of Hurley, another surf wear and skateboarding brand.
"There was a lot of concern when Nike bought Hurley that it was going to hurt the brand because its core customers would shy away," Mintz said, "but that didn't happen."
And Quiksilver's financial struggles have gone largely unnoticed by its customers, so a transfer of ownership could be pretty seamless. At Surfside Sports in Costa Mesa, Quiksilver board shorts and other gear are wildly popular among customers of all ages, co-owner Duke Edukas said.
"We hear about how much trouble Quiksilver is in, but in our store, it's still one of our top-selling brands," he said. "People trust the name. It's vastly respected by the core market."