Watson comes out on top in lingerie deal
Online underwear retailer sold to cover Bendon debt
Eric Watson has solved a tricky debt puzzle by selling a lingerie company to New York-listed Naked Brand Group in return for shares and the forgiveness of US$9.9 million ($14.4m) of debt owed to subsidiary Bendon.
Under the deal, Naked will acquire online lingerie retailer FOH Online Corp for an assumed price of US$18.2m, which includes US$8.36m worth of shares and assumption of the company's debt.
Watson (pictured below), whose interests already hold a major shareholding in Naked following its merger with Bendon, has structured the deal through his main investment vehicle, Cullen Investments, which bought FOH Online Corp last December.
But the deal is complicated by certain obligations and claims involving the parties, understood to be centred on patent disputes. Separately, a class action complaint was filed this week in a United States court alleging FOH engaged in an unsolicited cellphone text messaging campaign to customers.
FOH is the exclusive licensee of the Frederick's of Hollywood global e-commerce business, which generated net sales of US$20m for the year to June 30, 2018, up 22 per cent on the previous year.
Frederick’s of Hollywood was established in 1946 and is notable for introducing the push-up bra, padded bra and black lingerie to the US market.
The acquisition of FOH Online will secure revenue Naked currently books under a sublicense agreement. According to a stock purchase agreement filed with the US Securities and Exchange Commission, Naked will issue 3.76 million shares at US$2.20 a piece to a bare trust held by Australia-based Huntley 2 Holdings.
Any shares not required to satisfy outstanding claims will then be transferred to Cullen Investments under a sunset clause.
Naked will assume the long-term debt including US$7.48m owed by Cullen and $2.46m owed by FOH to Bendon. Naked's investment relations spokesman did not reply to emailed questions about the deal.
In a statement announcing the deal, Naked chief executive Justin Davis-Rice said management expected the e-commerce business to generate $25m in revenue for the fiscal year to January 31, 2019.
“The Frederick's of Hollywood e-commerce business is an ideal fit with Naked,” he said.
“We are pleased to see that Frederick's of Hollywood sales have grown at such a rapid rate in response to key improvements made over the last year.”
FOH Online's sales tactics may come under scrutiny after a class action complaint was filed in the US District Court of Eastern California.
Plaintiff Joanna Damiano alleges FOH Online has made unsolicited text messages to cellphones after consumers have requested otherwise.
She claims FOH sends unauthorised texts advertising lingerie products, sales and promotions and is seeking injunctive relief.
FOH Online was originally funded by an affiliate of Bendon, which until its merger with Naked was 71 per cent owned by Watson's interests.
According to Naked's latest annual report, Cullen Investments acquired 100 per cent of FOH Online on December 31 last year.
The sale of FOH Online provides some relief for Watson, who has been embroiled in multiple legal actions including a $60m dispute with Inland Revenue and a $250m wrangle with former friend Sir Owen Glenn, recently ruled against Watson.
In the midst of that, Watson has sold his New Zealand assets and reorganised his offshore investments. Divestments include his luxury Te Hihi estate in Karaka, sold for $14m, a stake in Auckland restaurant Soul Bar and Bistro, for an undisclosed sum, and a half share in the New Zealand Warriors Rugby League team. Naked is due to release its full-year result on December 20. The underwear company, which sells mainly through Bloomingdales, Nordstrom.com and Dillards, reported a loss of $US5.8 million on revenue of $US2.9m in 2017 and expects further losses this year.
Bendon, whose brands include Heidi Klum Intimates and Swimwear, has made eight-figure losses in each of the past three years, including a $37m loss for the year to January 2018.