Payless ShoeSource Inc. said Tuesday it will acquire The Stride Rite Corp. for $800 million, plus debt.
The all-cash deal represents $20.50 a share, and follows Payless' $91 million acquisition in March of Collective International LP, owner of Airwalk and Vision Street Wear.
The company will be renamed Collective Brands Inc. and will operate three separate divisions: Collective Licensing, Payless ShoeSource and Stride Rite. Matt Rubel, Payless' president and chief executive officer, will be ceo of the parent company, Collective Brands.
"Our goal was to really use the infrastructure of Payless to go after new businesses in the footwear industry separate from Payless," Rubel told WWD. "Stride Rite was squarely positioned — it has casual and athletic footwear, and is a premium leader in children's. The new platform will have three distinct entities.…The infrastructure and cash flow from Payless ShoeSource will support the growth [of the three operating units]."
The deal, which has been OK'd by the boards of the companies, still needs shareholder and regulatory approvals. It was announced after the stock market closed.
David Chamberlain, chairman and ceo of Stride Rite, said the company was "talking to analysts about the strong consolidation trend in wholesale and retail and our board decided it would be better for us to be part of a larger company. Payless made a compelling offer for shareholders."
Chamberlain said the per-share offer, at a 32 percent premium, represents the "highest that the [Stride-Rite] shares will have traded at in nearly 15 years at the time the deal closes."
The assumed debt was not disclosed, but management said in a statement that the debt leverage ratio for the new company "is expected to return to Payless' pre-transaction level within two to three years of the acquisition's consummation."
Management said the deal is expected to be "earnings per share accretive in fiscal year 2008."
Collective Brands will look for opportunities to complement its existing consumer brands, Rubel said. In addition, he noted that the company will likely add product extensions to its brands. Those categories might include hosiery and accessories.
Rubel said the Stride Rite acquisition also would give Payless a huge resource in skills and people. Moreover, even with the potential for product extensions, "Our primary mission is to be the leader in brands in footwear first," he said.Citi and Financo Inc. were the financial advisers for Payless, and Goldman Sachs advised Stride Rite. Stride Rite owns or licenses brands including Stride Rite, Keds, Sperry Top-Sider, Tommy Hilfiger Footwear, Saucony and Robeez.
"Collective Brands is expected to have stronger growth potential than either Payless or Stride Rite alone as a result of a strong portfolio of well-known footwear, lifestyle and athletic brands and competitive advantages stemming from increased scope and scale," the company said.
Payless stores will focus on "democratizing fashion and design in footwear and accessories through its nearly 4,600 store retail chain," the company said, adding that Stride Rite will center on "lifestyle and athletic branded footwear and high-quality children's footwear sold primarily through wholesaling arrangements and more than 300 Stride Rite store locations."
The Collective Licensing arm of the business will focus on brand management opportunities, which include "lifestyle and high-quality fashion athletic brands."
Gilbert Harrison, chairman and founder of Financo, cited Rubel's vision for the company as the genesis of the deal. "When Rubel came on as ceo [in 2005] he worked for two companies in essence: Payless the brand and Payless the holding company. His vision is to build an integrated company that will touch consumers domestically and internationally."
Harrison said in the last two years, Payless has expanded its brand, "and added designer collections, opened a design office in New York City and opened new store formats while also [posting] eight straight quarters of same-store gains."
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