Kellwood Co. stepped forward on Thursday as the stalking horse in the race to acquire the label’s parent company, Kasper ASL, with an aggregate bid of $163.6 million, following a report in WWD on Thursday that Jones Apparel Group is likely to raise the stakes with a more aggressive offer for Kasper.
Kellwood and Kasper announced in separate releases that Kellwood had agreed to acquire Kasper with a purchase price of $111 million in cash, $40 million in Kellwood common stock and the assumption of prepaid royalties projected to be $12.6 million at closing, plus the assumption of certain other liabilities. Since Kasper is operating under bankruptcy protection, the statements effectively served as an opening salvo to an auction, when other parties, Jones included, could step forward with higher offers.
While Kellwood might not emerge as the victor, its offer marks the beginning of the end for a long period of uncertainty at Kasper, as a resolution is expected to come within 45 to 90 days. The agreement, which has the support of Kasper’s official creditors’ committee, is now subject to bankruptcy court approval and an auction would be conducted to determine the highest and best offer, which could come from any number of interested parties — Kellwood, Jones, Liz Claiborne Inc., Lawrence Stroll and Silas Chou, or even Kasper’s own management, led by John Idol, chairman and chief executive of the company.
However, Kellwood’s agreement calls for a change of Kasper management. Idol, who said he would resign if Kellwood’s bid succeeds, would be replaced by Gregg I. Marks, currently president of Kasper, and Joseph B. Parsons, currently chief financial officer, would be promoted to president and chief operating officer. Meanwhile, Idol’s compensation package, as detailed in a filing with the Securities and Exchange Commission, includes a payout to him of about $11 million, roughly the same amount he received in a settlement with LVMH Moët Hennessy Louis Vuitton last year, following his departure from Donna Karan International in 2001.
If another company like Jones should prevail, however, Idol could potentially choose to stick around rather than cash out.“I have several different options I am looking at and once we have completed the required bidding process, I’ll make a more definitive decision on where I will go,” Idol said in a telephone interview, during which he indicated that Kellwood could make a strong future partner for the Kasper businesses. “I think it’s a very good fit for the company and employees. What I’m particularly happy about for the company is that Kellwood plans to keep it entirely intact. The company is in very good shape right now and it’s on a roll.”
Kasper has been exploring various strategic options, with Peter J. Solomon Co. as a financial adviser, as part of its plan to emerge from bankruptcy protection in the coming weeks, including a management-led takeover offer beginning last December for $88 million that was subsequently increased to $100 million. However, talks appeared to be dragging as the likely candidates to make a competing offer were distracted by coincidental developments, including Jones’ dispute with Polo Ralph Lauren and Kellwood’s reported negotiations with Phillips-Van Heusen to obtain the women’s better collection license for CK.
At the same time, there was a strong feeling from the bankruptcy court that Kasper, whose performance has improved dramatically over the course of two years, no longer belonged there as the company was turning a profit.
“What happens from here remains to be seen,” said Marc Cooper, managing director of Peter J. Solomon Co. “We had a pretty broad field of bidders and there’s no reason one of them couldn’t step in with a higher offer. Others also may enter the process. The next step is for the bankruptcy court to approve Kellwood as the stalking horse and then for an auction date to be established.”
Hal J. Upbin, chairman, president and ceo of Kellwood, said the company’s interest in Kasper stems from the solid position of Kasper’s many labels in the better suit market and AK Anne Klein in better sportswear, an area the company is looking to delve into deeper as it extends its reach beyond its core portfolio of moderate brands. Should Kellwood also conclude a deal for the CK better collection, observers said, the combination of brands would give the company significant leverage in tackling the department store channel.“Kasper is the number one brand in women’s suits at this point, so it’s an exciting opportunity to take a recognized brand in the better arena,” Upbin said. “In our portfolio, we know better is not our core strength, but we do feel we need to diversify to include more better brands. Of course, the acquisition of the Anne Klein label opens the door for lots of growth scenarios.”
Kellwood is serious about the acquisition and plans to compete in the bidding process, which Upbin cautioned could take as long as August or September before it’s all over.
“We hope we’ll prevail, but we really don’t know,” he said. “We have the capability to go as high as it makes sense and we have the resources to do so.”
As of May 3, Kellwood had cash on hand and time deposits totaling $95.3 million.
Jones could likely give Kellwood a run for its money. As reported on Thursday, Jones has obtained a $700 million three-year revolving bank credit facility that extends to June 10, 2006. Combined with the company’s extant $700 million revolving credit facility, which lasts until June 15, 2004, Jones now has $1.4 billion of committed bank credit. Peter Boneparth, ceo of Jones, declined to comment on Thursday.
Kasper is a considerable opportunity for the interested parties, with sales of $358 million in 2002 and a 16 percent increase in licensing revenues to $17.7 million, with an income for the year of $6.4 million as compared with a loss of $75.5 million the year before. Income in its most recent quarter, ended March 29, was $8 million on sales of and licensing of $104.9 million.
Gilbert Harrison, chairman of Financo Inc., which advised Kellwood on its transaction, said the deal would give Kellwood “two established, attractive brands: Kasper, with its predominance in the women’s suit business and Anne Klein, with its tremendous position in licensing that Kellwood should be able to grow vigorously. It’s slightly upscale for Kellwood, but not tremendously.”
Cooper added, “People buy brand-oriented businesses either for the value proposition they currently have or what they can do with the brand in the future. In this case, we had both — a highly profitable suit business at Kasper and a strong brand for Anne Klein, including significant licensing revenue from highly successful licensees like Maxwell Shoe. The opportunity is to leverage the Anne Klein name and build a sizeable sportswear business with it. Kellwood has the resources to make Anne Klein into what it can be and it’s a great acquisition for them.”Paul Altman, senior associate of The Sage Group, a Los Angeles-based investment banking firm that advised Juicy Couture on its sale to Liz Claiborne Inc. and Earl Jeans on its sale to Nautica Enterprises, said, “It’s always interesting in bankruptcy situations. In essence, Kellwood is the stalking horse. It’s the first bid that creates the market. You can be easily overbid.”
But, he added: “It makes strategic and financial sense for Kellwood. They’ve been very acquisitive and focused on the moderate market. We think they’re getting a good deal. By virtue of being part of a bankruptcy process, you can get strong brands at affordable prices.”
Arthur S. Levine, the former Kasper chairman and founder who was at the helm when the firm bought Anne Klein in 1999, then left and started a better suit line with Elie Tahari last year that competes directly with Kasper suits, said the deal will not affect his business.
“I wish them the best,” Levine said. “It has been in the works for a while now and it was inevitable, it had to be bought. I’m sure they’re going to run Kasper as it’s been run, but I don’t know what they’re intending to do.”
Upbin said Kasper, consisting of five distinct brands — the moderate brand Le Suit, better brands Kasper suits, sportswear and dresses; AK Anne Klein sportswear and Anne Klein dresses, and Albert Nipon and Anne Klein New York targeting the bridge market — would be a complement to Kellwood’s portfolio, a company whose biggest brand is Sag Harbor, estimated to do between $500 million to $600 million in volume. Kellwood’s plan calls for Kasper to be structured as a stand-alone company under the Kellwood women’s wear umbrella, headed by Stephen L. Ruzow, president.
Investors applauded the move, sending Kellwood shares up $1.29 or 4.3 percent to close at $31.07 in New York Stock Exchange trading Thursday. Kasper shares, facing the likelihood of extinguishment after the firm’s assets are sold, lost more than half their value, closing at $1.40 in over-the-counter trading.
Apart from the changes of president and ceo of Kasper, the company said in a statement that the remainder of the management team is intended to remain in place under a Kellwood acquisition.“The employees of Kasper have done an excellent job of revitalizing the company and returning it to profitability,” said Idol, in the release, adding that the Kasper division would report directly to Ruzow. “Kellwood, with its strong balance sheet, worldwide sourcing network, extensive customer base and excellent merchandising capabilities, will allow Kasper to achieve its next level of growth.”
Reports over the past several months that Idol has been considered for a number of top positions, including the vacant ceo spot at Michael Kors, which was recently acquired by Stroll and Chou, and also opportunities at Tommy Hilfiger Inc., have contributed internally to an air of uncertainty at Kasper. Charles Nolan, the designer who helped revive the Anne Klein collection with well-received runway shows, left abruptly in April, adding to the confusion.
Idol is well protected, either way, considering his employment contract calls for a lump-sum payment in the event of an emergence from Chapter 11, a sale to another firm or termination or employment for any number of reasons. Kellwood, too, appears to be protected in the case another company is ultimately successful in acquiring Kasper.
Karen Goodman, a director of Financo, said it is customary for there to be bid protections in place for the buyer of a company out of bankruptcy. Sources said in this case, if someone comes in with a higher bid, they would have to pay Kellwood a break-up fee of $4 million.
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