Liz Claiborne Inc., which has been cutting deals to pay down debt and focus on Kate Spade, Juicy Couture and Lucky Brand, has finally solved its Mexx problem.
The company inked a deal to sell a majority of the loss-leading division to The Gores Group for about $85 million. The move comes on the heels of another agreement last month that raised $58.4 million from Elizabeth Arden Inc., which will make lower royalty payments on fragrance businesses tied to Claiborne’s brands. And in 2009, the company licensed its mature Liz Claiborne brand to J.C. Penney Co. Inc., giving the retailer an option to buy the name.
“At the close of this transaction, we will be a more capital efficient, growth-oriented company and will be able to fully turn our attention to building and growing our core portfolio of global lifestyle brands,” said William L. McComb, chief executive officer of Claiborne, as the company revealed the Mexx agreement.
After the deal closes in the fourth quarter, Gores, a private equity firm with $4 billion in committed capital, will own 81.25 percent of a joint venture that holds the Mexx brand’s European and Canadian operations. Claiborne will own the remainder of the venture and Thomas Grote will continue as ceo of the business.
The purchase price includes $25 million in cash and $60 million in debt that will be taken off Claiborne’s books and transferred to the joint venture.
“We’ve brought the Mexx European business to the early stages of a true turnaround,” McComb said. “But there is more to be done, and in uncertain times and true market volatility, de-risking became essential.”
The Mexx deal is expected to remove $25 million of adjusted losses before interest, taxes, depreciation and amortization from Claiborne’s financial statements this year. As of July 2, the brand had 169 stores, 85 outlets and 132 concessions.
Shareholders approved of the deal and drove the stock up 9.1 percent to $5.52 on a down day in the markets Friday.
Scott Tuhy, a debt analyst at Moody’s Investors Service, said the deal “will enable the company to spend and focus more on its better long-term growth opportunities — Juicy, Lucky and Kate.” Robert Drbul, an analyst at Barclays Capital, said, “We believe that the company has chosen to de-risk the Mexx business now as opposed to waiting for the segment to further develop profitability due to uncertainty around challenging European macroeconomic conditions.”
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