VF Corp. has signed an agreement to acquire the trademarks and intellectual property of bankrupt Rock & Republic for $57 million in cash.
The deal does not include the premium denim brand’s operations, retail stores or inventory, meaning Los Angeles-based Rock & Republic Enterprises will be wound down after completion of the transaction. The sale is a jarring return to earth for Michael Ball, the once high-flying chairman and chief executive officer who founded the brand in 2002. Ball, the sole owner, will exit the business.
Rather than manufacturing Rock & Republic product itself, VF Corp. plans to operate the brand under a licensing model. Rock & Republic is the first acquisition by VF’s newly created Retail Licensed Brands group, which was formed in July 2009 and is led by David Conn, president of the group.
Conn is a veteran of Iconix Brand Group, where he was executive vice president. VF has said the group’spurpose is to seek leading retailers to partner with on licensed brands.
The deal will allow Rock & Republic to pay off about $25 million in debt to unsecured creditors and $15 million to secured creditor Richard Koral.
“Rock & Republic is an established brand with a strong following, and we believe it has strong potential under our new licensed business model that we established last year,” said Cindy Knoebel, vice president of financial and corporate communications at VF, which is based in Greensboro, N.C. “As we get closer to the completion of the transaction, we will be able to provide more details on our plans and strategy for the brand.”
The acquisition is subject to approval by the bankruptcy court of the Southern District of New York. The agreement was OK’d by Rock & Republic’s creditors and should face few obstacles in bankruptcy court. VF Corp. and Rock & Republic expect to complete the transaction by April.
The new VF licensing venture aims to replicate the success that companies such as Iconix Brand Group have enjoyed with the business model. “What VF has said is that it will offer more holistic services to retailers, such as design capabilities, sourcing and marketing — whereas a company like Iconix focuses more on brand management and advertising,” said Kenneth Stumphauzer, senior research analyst at Sterne Agee Capital Markets.
Rock & Republic joins VF’s stable of existing denim brands, a lineup that includes Seven For All Mankind, Lee, Wrangler, Rustler and Riders. The price tag for Rock & Republic, which does just under $100 million in sales, values the company at a fraction of the $775 million that VF Corp. paid for Seven For All Mankind in 2007. At that time, Seven For All Mankind was ringing up $300 million in annual sales.
“This looks like a pretty savvy deal to me,” said Stumphauzer. “The question is where they want to position Rock & Republic. Will they keep it high-end? Or they could put it in a Kohl’s or J.C. Penney or even Macy’s. Historically with these license models, it’s been about putting the brand into a single retailer as an exclusive. I think Rock & Republic has maintained enough cachet and brand integrity that it would be very attractive to these kinds of retailers.”
Denim is VF Corp.’s second largest business, after the outdoor and action sports segment, where its brands include The North Face, Vans, Reef, Jansport and Kipling.
For the nine months ended Oct. 2, VF Corp.’s jeanswear coalition posted revenue of $1.85 billion, down 1.5 percent from the same period in 2009. The declines were driven primarily by the European markets, where it exited the mass market category in 2009 and negative currency translation effects. Domestic jeanswear revenues were relatively flat in the nine-month period while Asia revenues increased 34 percent.
Rock & Republic will fulfill all customer orders during the transition period to VF Corp., said Geoffrey Lurie, chief restructuring officer at Rock & Republic, who joined the troubled denim maker after it filed for voluntary Chapter 11 in April. The firm was forced to seek bankruptcy protection after it could not pay back $15 million owed to Richard Koral, a loan that had been secured by Rock & Republic’s intellectual property, which was valued at $50 million at the time. L.A.-based Koral sells overstock to outlet stores. Richard Koral is the brother of Seven For All Mankind co-founder Peter Koral.
“I think given the circumstances, this is a good deal for everyone involved,” said Lurie, who is a partner at consulting firm Lightship Partners and a turnaround specialist. “It’s good for VF, good for the creditors who get paid off and good for Michael Ball, who is walking away with a pile of money.”
Lurie previously helped engineer the sale of The North Face to VF Corp. in 2000.
Ball was known for his bombastic statements regarding the value of his brand as well as his scorn for denim competitors. In 2006, he called Jeff Lubell, founder and ceo of True Religion Apparel Inc., “a hack out to make a fast buck with ugly jeans.” Publicly traded True Religion now posts annual sales of $345.6 million and has a market cap of well over half a billion dollars.
Over the years, Ball invested heavily on high-voltage runway shows during New York Fashion Week and a now-defunct Rock Racing cycling team, and sponsored several Indy 500 race cars. He once envisioned opening a chain of Rock & Republic hotels and even an airline.
Earlier this month, however, a chastened Ball told WWD the company had overextended itself financially by investing in stores and launching a cosmetics line in the midst of the recent recession. Those stores, which include a flagship on South Robertson Boulevard in Los Angeles and several outlet stores in New York and California, will be shuttered once the VF deal goes through.
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