By and  on January 28, 2009

TOKYO — Fast Retailing Co. Ltd. said Wednesday it will launch a tender offer for the 68 percent it doesn’t already own of fashion and retail concern Link Theory Holdings Co. Ltd., the parent company of the Theory and Helmut Lang businesses.

The deal aims to delist Link Theory from the Tokyo Stock Exchange and make it a fully owned subsidiary of Fast Retailing. Fast Retailing is offering 170,000 yen, or $1,906, a share, a nearly 62 percent premium over Link Theory’s closing share price on Wednesday of 105,000 yen, or $1,177. Currency conversions were made at current exchange rates.

“We want to grow our global brand business,” said a Fast Retailing spokesman. “It’s the right timing for us to invest more money in Theory.”

Uniqlo parent Fast Retailing already owns 32 percent of Link Theory and buying the remainder will cost about 18.72 billion yen, or $209.8 million. But Standard & Poor’s issued a release stating that Fast Retailing’s acquisition costs will be closer to 30 billion yen, or $336.3 million, considering Link Theory’s debts. The rating agency went on to state that the deal will have a limited impact on Fast Retailing’s otherwise strong financial base, thanks to continued strength of the Uniqlo business.

The tender offer ends March 12.

Also on Wednesday, Link Theory cited deteriorating market conditions and unfavorable currency translation effects, as well as a one-time loss on its divestiture of Rosner GmbH & Co., as it sharply cut back its expectations for the second half and fiscal year ending in August.

Consolidated net sales for the year now are projected to fall to 48.65 billion yen, or $683.8 million, a 20.3 percent cut in guidance. Net income was originally pegged at 250 million yen, or $2.8 million, but the firm now expects a loss of 4.2 billion yen, or $47.1 million. Operating income expectations were cut by about two-thirds, to 851 million yen, or $9.5 million, from 2.4 billion yen, or $26.9 million.

Those who stand to cash in on Fast Retailing’s offer include Link Theory president and chief executive Ricky C. Sasaki, who owns just over 21 percent of the company. Other large shareholders include Goldman Sachs and Morgan Stanley, according to Link Theory.

Fast Retailing chairman and chief executive Tadashi Yanai has said he wants to fuel his company’s growth through acquisitions. In a recent interview with WWDJapan, the executive said it is a lucrative time for deals given the strength of the yen and falling valuations.

Andrew Rosen, president and co-ceo of Link Theory Holdings, said, “It’s a good thing for the future of Theory and its continued global expansion. The great thing here is we know them [Fast] and they know us. Fast Retailing’s results are outstanding throughout this whole difficult [economic] period.” He said for the last several years, Theory has been on an aggressive global expansion, and when this acquisition is finalized, it can use the leverage of Fast Retailing. Rosen said he only has a small interest in Link Theory Holdings.

The two Japanese companies have been associated with each other for several years. In 2003, Fast Retailing and Link International Co. (as the company was called at the time) joined forces to buy U.S. contemporary apparel company Theory from founders Rosen and Elie Tahari. Prior to the deal, Link had been Theory’s Japanese importer and franchisee.

Fast Retailing went on to buy a stake in Link International, which later changed its name to Link Theory Holdings Co., which went public in Japan in 2005. In 2006, Link Theory expanded its brand portfolio by buying the Helmut Lang trademark name from Prada for an undisclosed price.

In June 2006, Tahari filed a lawsuit charging that Rosen defrauded him into selling Theory in 2003 at a price that didn’t reflect the company’s true value. The suit alleged the new Japanese owners resold Theory in an initial public offering on the Tokyo Stock Exchange in 2005 at a market capitalization of more than $500 million. Tahari sought no less than $180 million in damages from Rosen and 10 other defendants. Nine months later, the court dismissed six of the seven causes of action alleged in Tahari’s complaint. Tahari appealed the ruling and, in December 2008, Tahari’s lawsuit was withdrawn as a result of a settlement agreement, in which Link Holdings was to pay Tahari $6,250,360 in full settlement of the case.

Standard & Poor’s noted that Link Theory is going through a period of “weak performance” due to deteriorating demand for the core Theory brand in the U.S. amid the economic downturn. It also criticized some of the company’s “unsatisfactory” M&A activity and brand diversification.

Obviously, Rosen said, the apparel industry has slowed down globally, and there will be less business done in 2009 than 2008. “The level of business is not growing and that is not a bad thing. It allows us to make hard and tough decisions that you wouldn’t make otherwise. We’re reformatting our merchandising platforms. The customer totally changed. Stores, manufacturers got on automatic pilot, and kept doing 15 percent more than we did before. We figured the more we make, the more we sell. It was easy and people took it for granted. But the business got a little stale and the economy got tough. We’re now in a situation where the consumer has to be reenergized.”

He said Helmut Lang is doing very well. “If the economy were back to where it was a year and a half ago, you’d be hearing a lot from it. We had a rough start, and we’ve totally turned it around and it’s a very exciting concept right now,” said Rosen.

Last summer, Link Theory shuttered Premise, its two-year old bridge division, although it continued to operate in Japan. At the time, Rosen said the group wanted to focus its attention on the Helmut Lang business, which was gaining traction. Premise had been a $15 million to $18 million wholesale business carried in stores including Bloomingdale’s and Saks Fifth Avenue.

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