VF Exploring Jeans Sale?
Is VF Corp. ditching the jeans business?
Shares of the company inched up 0.8 percent to $96.29 Friday after The Wall Street Journal cited unnamed sources who said the company was considering selling or spinning off the business.
Executives at VF Corp. could not be reached for comment.
A deal would separate the company's biggest drag on revenues, Lee (with sales declines of 6 percent last year) and Wrangler (down 1 percent), from the still-growing businesses like Vans (up 19 percent), The North Face (up 4 percent) and Timberland (up 2 percent).
The jeans business is still valuable, posting segment profits of $421.9 million on sales of $2.7 billion last year.
But it's not so valuable that the resources couldn't be put to better use elsewhere.
Michael Binetti, a Credit Suisse analyst, noted that VF's stock is trading at 18-times earnings before interest, taxes, deprecation and amortization, while companies that are more comparable with the jeans division, Hanesbrands Inc. and Gildan Activewear Inc., trade at 10- to 12-times EBITDA.
And so Binetti said a deal could be dilutive in the near term, but positive over the longer run.
“Jeans revenues have been [roughly] flat for 10 years, and consume capital ( jeans factories) that'd be better deployed for M&A,” the analyst said.
VF has certainly shown a willingness to buy and sell recently, having sold off Nautica, its licensed sports business and its contemporary brands while buying the Icebreaker and Altra brands.
Gilbert W. Harrison, chairman of the Harrison Group and former chairman and founder of Financo, noted of the jeans business: “I'm not surprised since it is no longer a core business and the business has significantly changed over the years. They divested their lingerie business — Vanity
Fair — a number of years ago, and that was the original core of VF.”
One fashion executive involved in mergers and acquisitions said: “VF is looking to sell more brands,” suggesting that any review of the jeans business could be part of an overall look at the company's portfolio.
Wrangler and Lee could be spun off or sold, according to a published report.
The executive estimated that the sale price on the jeans business would likely be $3 billion or higher and that “any buyer would have to put at least $1 billion down and finance the rest.”
Given that price tag, most strategics would likely be priced out of a deal, making a private equity firm the most likely buyer, should VF choose that path, the executive said.