By and  on October 27, 2009

Marc Ecko may be close to finding a new partner in Iconix Brand Group Inc.

After months of speculation, a possible deal was in the works between Marc Ecko Enterprises Inc. and Iconix. Sources said the two firms are close to signing an agreement, and it could happen as early as today.

The deal would give the marketing and licensing firm, which generates about $8 billion in annual retail sales, the rights to the Ecko brand and its trademarks. The deal also could help Ecko pay down significant debt owed to a group of lenders headed by CIT, as well as trade receivables owed to its sourcing agent, Li & Fung Ltd. Ecko hired investment bank Peter J. Solomon in November to assess and facilitate these strategic options.

Iconix executives could not be reached for comment and an Ecko executive declined comment on Monday.

At a company barbecue for employees on Sept. 24, hosted by chief executive officer Seth Gerszberg at his home in Highland Park, N.J., Marc Ecko explained to WWD that the debt was racked up prior to the financial crisis of 2008, when leverage was almost considered a badge of honor.

“Now, leverage is a hot potato,” Ecko said of the changed financial environment and the tougher lending requirements that have forced the company to seek ways to reduce its debt load.

“We want to have less debt and be more nimble,” explained Gerszberg.

However, both Ecko and Gerszberg were adamant at the barbecue that they would not sell a majority stake in the Ecko brand. “We would never give up control of the intellectual property in Ecko,” said Ecko. “We’ve built this company up over 16 years.”

If the Ecko brand is sold, it would mark a stark about-face on that stance by Ecko and Gerszberg. At press time, it was unclear if Iconix would buy only a minority stake in the Ecko brand or signing a long-term license agreement.

Marc Ecko Enterprises was founded in 1993 by Gerszberg, chief creative officer Ecko and Marci Tapper, president of Zoo York and Ecko’s twin sister.

Until this point, in order to raise funds, Ecko and Gerszberg have unloaded several noncore properties. In June, the company sold its $50 million Avirex young men’s brand to Kids Headquarters, the longtime children’s licensee of the Ecko Unltd. brand and the former children’s licensee for Avirex.

Earlier that month, it also sold its Marc Ecko watch trademarks to Timex Corp. The Middlebury, Conn.-based watchmaker had been the brand’s watch licensee since 2002.

In cost-cutting moves, the company this year shuttered nine Zoo York stores, as well as several Marc Ecko Cut & Sew stores that were not turning a profit. The company abandoned long-held plans to open a large Manhattan flagship on 42nd Street near Times Square, which was kept as an empty shell or under construction for more than three years.

As of June, the company still operated nine Marc Ecko Cut & Sew units and 73 Ecko Unltd. mall-based stores.

In a company memo to employees in April, Gerszberg and Ecko explained: “The market has made it clear to us that each of our individual businesses is worth more on a stand-alone basis than combined. Accordingly, we are working to decentralize the businesses of Marc Ecko Enterprises. We want to ensure that the difficult environment does not ultimately impede the continued growth and development of any business unit.…Each brand should be aligned with the strategic or financial partners that will optimize its future growth and opportunities.”

On the growth front, this month, the brand’s first men’s fragrance hit department store counters via licensee Parlux. In September, it introduced a new contemporary label called Marc Ecko Rx to retailers at the Project trade show.

Last winter, the company relaunched its junior Ecko Red brand with licensee Icer Brands. The move came after several previous incarnations in the category — it was licensed to Paul Davril Inc. from September 2004 until early 2007, then taken back in-house and relaunched as Red by Marc Ecko in fall 2007. In December 2008, the Ecko Red brand was brought back to life as a junior label licensed to the New York-based Icer Brands.

Apart from its apparel businesses, Marc Ecko Enterprises’ other holdings include Complex magazine and Marc Ecko Games, a video game developer. On its Web site, the company claimed total retail sales of $1.5 billion in 2007.

With the potential acquisition of Ecko, Iconix would add its 18th brand into a portfolio that includes Candie’s, Rocawear, Mudd, Rampage, Badgley Mischka, London Fog and Op. In May, Iconix acquired 50 percent of the Ed Hardy brand, having paid $17 million for its half, comprising $9 million in cash and $8 million in stock.

This latest acquisition for Iconix would come just after the firm cut its earnings outlook for the year, prompting a sell-off that drove the stock down 21.1 percent to $12.47. The company said 2009 earnings would range from $1.06 to $1.11 a diluted share instead of the $1.16 to $1.21 previously projected. The estimate reflects a dilution of 12 cents a share related to a June offering of 10.7 million shares and a negative impact of 4 cents from the transition of the Rocawear women’s business to a new licensee. Revenues are slated to range from $215 million to $220 million, instead of the $223 million to $230 million previously projected.

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