By  on March 7, 2007

NEW YORK — Iconix Brand Group Inc. is branching out in more ways than one, from the acquisition of Rocawear to the establishment of a new brand management and licensing company that will make acquisitions.

Iconix said Tuesday that it would acquire the Rocawear brand for $204 million in cash, and contingent payments of an additional $35 million of Iconix stock based on performance thresholds over the next three to five years. The announcement confirmed a report in Monday's WWD that the two were close to inking a deal. The company also reported earnings for the fourth quarter gained 18.3 percent.

Rocawear co-founder Jay-Z will be in charge of all product development, marketing and licensing for the brand, and his senior management team will join Iconix. In addition, Jay-Z will retain his stake in the operating company that manufactures Rocawear men's apparel. His two partners in that business, Alex Bize and Norton Cher, will continue to run the operating company. The company will enter into a long-term license agreement with Iconix for the young men's apparel category. Iconix forecast that Rocawear would generate $43 million in royalty revenue in its first 12 months under the Iconix umbrella.

In the joint venture between Iconix and Shawn Carter, Jay-Z's real name, Iconix will contribute $5 million and Carter's portion will be the equity in a luxury fashion brand called the Shawn Carter Collection, set to make its debut in 2008. The new firm will identify brands to be acquired and/or developed across a broad spectrum of consumer product categories using the Iconix business model.

Neil Cole, chairman and chief executive officer of Iconix, told Wall Street analysts during a conference call on earnings that the investment criteria for the new company would be more along "what Jay-Z can bring to the table and what we think works in the [joint venture that is] different than Iconix's traditional acquisitions."

In a telephone interview, Cole said the joint venture represented a great opportunity to work with Jay-Z. Cole doesn't see Iconix necessarily in competition with itself when viewing possible targets for acquisition since "some deals are more in Jay's world and are not the typical deals Iconix would look at. We're open to all sorts of great opportunities."As for Rocawear, Cole said the company was split 55 percent men's and 45 percent women's, and the women's business was doing about $100 million in wholesale sales. He said the business in women's had grown in the last 12 months, and that one of the bigger women's categories was handbags. He believes Rocawear can become a $1 billion lifestyle brand.

"Our business will grow and get stronger with Iconix," said Rocawear's Cher. He said Iconix would allow Rocawear executives to concentrate more on design of the product, while Iconix can concentrate on growth of the brand. Rocawear had considered a sale with another company, which Cher declined to disclose, but he said Iconix made "perfect sense" because of its ability to grow the brand on a global scale. "And the money didn't hurt, either," Cher joked.

The Rocawear deal and Iconix's acquisition of Danskin, announced last month, are expected to close later this month, which will give Iconix ownership of 11 brands and a working relationship with 143 licensees worldwide. Iconix will announce within 60 days the core apparel licensee for another purchase, Ocean Pacific. That transaction closed in November, and Dick Baker, who was president of Op, remains on the board as a consultant. Iconix is also gearing up for the fall launches of London Fog at better department stores and Joe Boxer at Sears. While Boxer will still be sold at Kmart, the Sears line will be a premium product, with higher price points and better-quality fabrications and styling, Cole said.

Iconix so far has made six deals in 12 months, and there are no signs of slowing down. "We plan on continuing to be acquisitive. We don't plan on slowing down. There are so many great brands out there," Cole said.

Brad Stephens, an analyst for Morgan Keegan & Co., said, "It's another feather in their cap. I think it's going to be great. It obviously gives them another large brand in the portfolio. Rocawear is top of the line. They got one of the best brands in the space."

The analyst said one of the problems with the Iconix model was that over time the company had to keep upping the size of the acquisition. "I think you needed a needle mover and this is a needle mover," he said."It's probably the last of the key urban/suburban brands. They have done a remarkable job in creating licensing within the zone. The company has very substantial royalty revenue, and that's why it's interesting to Iconix. The company obviously has a connection to the entertainment world, which is important. In this zone, that is critical, if not crucial. Jay-Z is certainly a guy who has been respected in the community. It does have a crossover clientele," said Andrew Jassin, a consultant at Jassin-O'Rouke.

For the fourth quarter ended Dec. 31, Iconix's net income rose to $8.9 million, or 18 cents, from $7.5 million, or 19 cents, in the year-ago period. Licensing revenue jumped 117.6 percent, to $26.9 million from $12.4 million.

For the year, net income shot up 103.9 percent, to $32.5 million, or 72 cents, from $15.9 million, or 46 cents, in 2005. Licensing revenue jumped 167.6 percent, to $80.7 million from $30.2 million.

Iconix guided revenue forecast for the full year 2007 to between $150 million and $160 million, and upped its earnings per share guidance to between 96 cents and $1 per diluted share from its previous expectation of between 87 cents and 92 cents.
— With contributions from Whitney Beckett and Julee Greenberg

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