By  on January 9, 2012

Delta Galil IndustRies Ltd. and The Jones Group Inc. have called off their talks about a sale of the Jones jeanswear business to the Israeli firm, ending the possibility of a reunion of Delta Galil chief executive officer Isaac Dabah with the jeanswear brands he sold to Jones a decade ago.

Jones said it “intends to maintain ownership and normal operations of the division,” while Delta Galil said it would continue to “actively pursue other growth opportunities, both organically and through selected acquisitions.”

The companies disclosed they were negotiating a sale of the jeanswear unit for between $350 million and $400 million on Oct. 11, with Jones stating it expected discussions to be “concluded or terminated within a month.” When the Nov. 11 deadline arrived, talks continued and Dabah, who controls Delta Galil’s majority shareholder GMM Capital LLC, said his firm expected a deal to be struck by the end of last year.

Speculation surfaced in the wake of the November deadline that price had become the principal sticking point following weak results by Jones’ jeanswear unit in the third quarter. Delta Galil’s ability to corral financing for the deal was also mentioned by sources as a contributing factor. Both parties declined to comment Monday, as was the case after the passage of the initial deadline.

Dabah sold Gloria Vanderbilt Apparel Corp. to Jones in 2002 for $138 million in cash, stock and the assumption of debt. He stayed on after the purchase, which included the Gloria Vanderbilt and L.E.I. brands, and became group ceo for the jeanswear unit before leaving the firm in 2004. Jones also markets jeans under the Energie, Jessica Simpson, Erika, Glo, Grane, Bandolino and Nine West brands.

Dabah left Jones in 2004 and became Delta Galil’s largest shareholder in 2007 and its ceo in 2008. The Tel Aviv-based firm earlier this month was licensed to produce and distribute loungewear, underwear, hosiery and socks for men and women under the Kenneth Cole New York and Kenneth Cole Reaction labels.

When Jones released third-quarter results on Oct. 27, following disclosure of the talks with Delta Galil, it said jeanswear sales for the three months declined 18.6 percent to $187.1 million as operating income fell by more than half to $8.9 million. Jeanswear’s operating margin — earnings before interest and taxes (EBIT) as a percentage of sales — fell to 4.8 percent from 8.9 percent in the 2010 quarter, less than half of Jones’ other businesses, and its gross margin sank 260 basis points to 21.4 percent of sales.

Reports of a possible sale of the jeanswear unit surfaced long before the talks with Delta Galil were disclosed. In a recent interview with WWD about the company’s direction, including the appointment in November of Stefani Greenfield as chief creative officer, Richard Dickson, president and ceo of branded businesses for Jones, described Jones’ traditional brands as being ready for “reinvigoration.”

Shares of Jones Monday were off 22 cents, or 2.4 percent, to $9.09. In Tel Aviv, shares of Delta Galil fell 6.8 percent to 2,607 new Israeli shekels, or $6.77 at current exchange.

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