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An Undocking at Levi’s: Struggling Jeans Giant Puts Dockers on Block

Levi Strauss put the Dockers brand up for sale, its first dramatic move since hiring advisors Alvarez & Marsal in December to help right its ship.

NEW YORK — The makeover has begun at Levi Strauss & Co., including a For Sale sign on its Dockers brand.

The proposed sale of Dockers is the first dramatic restructuring move at the struggling jeansmaker since it hired advisers Alvarez & Marsal in December to help correct its course.

Financial sources estimated the selling price for the women’s and men’s casual brand could range from $650 million to $1 billion, with potential buyers seen as including Kellwood, VF Corp. and perhaps sourcing giant Li & Fung.

Meanwhile, Levi’s executives said Tuesday that more restructuring moves are on the way as a result of a plan drawn up by the company and Alvarez & Marsal. The reorganization is likely to mean yet more job cuts at Levi’s, which in the last six months alone has reduced its workforce by more than 10 percent.

Levi’s has retained Citigroup Inc. to handle the Dockers sale, which officials said they hope to close by the end of the year. If the sale occurs, it will radically resize the San Francisco company. Dockers contributed $1 billion of Levi Strauss’ $4.15 billion in revenues last year. Adding in the sale of $360 million in licensed products, the worldwide revenues of Dockers approach $1.4 billion.

Sales at Levi Strauss have been declining since 1996, when they peaked at $7 billion.

Phil Marineau, president and chief executive officer of the company, said selling Dockers, a brand the company launched in 1986, would allow management to focus on the core Levi’s business.

“This wasn’t an easy decision, because Dockers is an historic brand and a very powerful one, but we have made the strategic decision to sell Dockers and use the proceeds to pay down debt and strengthen ourselves financially,” he said in a phone interview, adding the sale would make Levi’s more financially flexible.

While Levi’s officials acknowledged that lightening the company’s $2.02 billion debt load, mostly in the form of publicly traded bonds, would be a boon, they denied the sale was a survival move.

“We don’t have our backs up against the wall,” said Jim Fogarty, an Alvarez & Marsal official who joined Levi’s as chief financial officer in December. “We are looking at this next step to really make the company nimbler so it can invest in the future and grow, and not be constrained.”

Marineau said, “We are in no danger of bankruptcy, and this is not something that is absolutely essential to do. We will not sell Dockers at any cost. We have a price we expect to get for it, and if we do not get that price, we will not sell Dockers.”

He declined to reveal Levi’s target price for the brand.

Andrew Jassin, a principal in the New York-based consulting firm Jassin-O’Rourke Group Inc., said depending on its operating margins, Dockers’ scale suggests the brand would command a price of $800 million to $1 billion. Sources in the financial community, who spoke on the condition of anonymity, said the value of the business might be closer to $650 million to $750 million.

“There are only three or four potential real good buyers out there who can pay a premium” for Dockers, given the brand’s large size, Jassin said.

He suggested that VF Corp., which, as the maker of Lee and Wrangler, is Levi’s largest rival, and Kellwood Co., which holds the license to produce Dockers women’s tops and men’s shirts, would be two possible contenders for the brand. Another dark horse, he added, could be Hong Kong sourcing giant Li & Fung, which has licensed the rights to produce tops under the Levi Strauss Signature label and has said it is interested in buying brands.

A spokeswoman for Kellwood said, “We have a business relationship with Dockers already, and we may have an interest in acquiring them.”

Kellwood most recently snatched up Phat Fashions in February.

A spokeswoman at Greensboro, N.C.-based VF said, “We always have an interest in strong brands, and Dockers is certainly a strong brand. We have a very full plate right now in terms of acquisitions that we are working on currently.”

VF in August closed on its $600 million acquisition of Nautica Enterprises and last month agreed to acquire sneaker vendor Vans Inc. in a deal valued at $396 million.

Reports that Levi’s might consider a Dockers sale first bubbled up in January, as noted by WWD, and they became stronger in the financial community in the last few weeks. But some bondholders dismissed them, believing the company was unlikely to get a good price for the business, considering its poor financial performances in recent years.

Marineau disputed that assessment, saying, “This is a propitious time for us to sell. Dockers is growing at retail. Brand equity is at a high level.”

During its first quarter, ended Feb. 29, Levi’s took a net loss of $2.4 million on sales of $962.2 million.

“We did have a tough holiday selling season, but what we’ve seen is every single month improvement in over-the-counter sales,” said Bobbi Stilen, president of the Dockers brand.

The privately held company discloses results to the Securities and Exchange Commission because of the publicly traded bonds. By region, the lion’s share of Dockers’ sales — $886.1 million — come from the Americas market, with $105.4 million from Europe and $42.6 million from the Asia-Pacific region, according to SEC filings.

Fogarty said the sale was “part of a comprehensive plan that we developed together” to improve the company’s operations, adding that the firm will be taking other actions “to get more competitive on operating margins.” That, he acknowledged, means more job cuts.

Levi’s has cut its headcount substantially in recent years, particularly as it has closed its company-owned manufacturing plants in favor of contract production. The firm currently employs about 11,000, down from some 12,300 at the end of November, according to a recent filing with the SEC.

— With contributions from Evan Clark

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