By and  on April 4, 2006

NEW YORK — Add two more to Iconix Brand Group Inc.'s growing stable of brands: Mudd and Mossimo.

On Monday, the New York-based firm signed two separate acquisition agreements for the purchase of Mossimo Inc. for $119 million and the Mudd trademark for $88 million.

Neil Cole, chairman and chief executive officer of Iconix, said, "Mossimo is a great brand and Target [which carries the brand] is a great retailer.... The two deals for Mossimo and Mudd are very accretive to Iconix."

In addition to Mossimo and Mudd, Iconix's umbrella of consumer brands includes Candie's, Bongo, Badgley Mischka, Joe Boxer and Rampage. Cole said no "one brand accounts for more than 20 percent of our income." For the most recent year-end period, licensing and commission revenue was $30.2 million.

Cole said he'll soon start analyzing the growth opportunities for Mossimo, but he was also quick to note the "phenomenal" job Target has done in positioning the brand at its stores. The Modern Amusement brand, part of Mossimo Inc., will be sold as part of the Iconix/Mossimo transaction to some of Mossimo's owners, and will not be part of Iconix, Cole added.

Under terms of the Mossimo deal, Iconix would acquire all of the outstanding shares of Mossimo for $7.50 a share, comprising cash and Iconix stock. The price per share represents a 37.1 percent premium from Friday's close of Mossimo shares at $5.47. Iconix said the deal is expected to close in July 2006 and will generate between $20 million to $25 million in 2007 royalty revenue. Mossimo founder and chairman Mossimo Giannulli will join Iconix as creative director and continue his work in building the brand. Cole declined to provide details of Giannulli's employment agreement. Separately, Mossimo said in a release that it amended its license agreement with Target, extending the license through January 2010.

Regarding Giannulli, it seems the founder of the brand finally got what he desired: a takeover price of over $7 a share. Mossimo and Iconix were in takeover talks on and off since last summer. Giannulli, who owns about 65 percent of Mossimo, made a bid to buy back the company in April 2005, hoping to acquire the balance at $4 a share. He withdrew the offer in August and then made a new offer, the second time upping the bid to $5 a share. While Giannulli's second tender offer was pending, Iconix moved in with its $7-per-share offer, and in November the parties were about to sign an agreement when Giannulli pushed for a higher price, according to financial sources at the time. Talks between the two firms broke off last November, and Giannulli withdrew his $5-per-share tender offer."Iconix has created something very exciting and has developed the licensing model into a business of much greater scale, diversification and synergy. Adding the Mossimo brand to this exciting platform is a compelling way to generate value for our shareholders, and I look forward to working with the Iconix team to continue to develop Mossimo to its greatest potential both domestically and around the world," said Giannulli in a statement.

The deal for Mudd, expected to close sometime this month, comprises 50 percent cash and 50 percent in Iconix stock. It includes 11 existing license agreements for Mudd. As part of the transaction, Iconix will enter into a new agreement under which the Mudd brand name will be licensed for use in the core denim business to Mudd USA and the brand's founder, Dick Gilbert. Gilbert, who founded Mudd in 1995 after shuttering his Zena jeans business and later selling a majority stake to Tack Fat Group in 2004, has a new three-year agreement with Tack Fat and will be working as Iconix's licensee, Cole said. The addition of Mudd to the Iconix umbrella of brands is expected to give Iconix an estimated $18 million to $20 million in 2007 royalty income. Iconix owns the rights to Mudd for all territories except China, which is retained by Tack Fat. Tack Fat also retains the right to open in-store shops in China.

The goal following the Tack Fat acquisition was to transform Mudd into a $1 billion business within two years. In order to double 2004 sales volume of $475 million, Gilbert has spent the last two years expanding the executive ranks.

"We have a lot of great opportunities with Mudd. They're not doing tops, swimwear or home furnishings. We want to grow the different product categories. There is an 84 percent brand awareness among young women who know Mudd," Cole said.

Mudd has struggled with its image over the last several years. Three months after the Tack Fat acquisition, Mudd began a campaign to capture older teen shoppers, a segment of the junior market that it had lost. The company hired brand consultants Graj & Gustavsen to develop new graphics and imagery that would support an older image. "We found out we were very strong with 12- to 14-year-olds and just OK with 15- to 20-year-olds," said Gilbert in an Aug. 26, 2004, interview with WWD.The company will make another effort to appeal to the older teen set this year with a new and costly advertising campaign spearheaded by the Catherine Sadler Group. Taking a cue from last year's Dove ads, the campaign will feature real teenagers and present Mudd wearers as those teenagers who actively seek to make a positive impact on the world through charity work.

In an interview, Gilbert said he doesn't anticipate the Iconix acquisition having the same impact as the Tack Fat venture. "The transition from the first sale was tough," said Gilbert, who said Mudd had lost as much as 25 percent of its market share when Tack Fat took over.

"We've got most of our major customers back. We just needed some better design and management. Everything is sorted out now, and the brand is going to come back most of the way this year," Gilbert said.

"Iconix plans to do three or four deals a year, and they've just done two in the first quarter....For Iconix, the deals are about diversification. The more brands Iconix has, the more revenue streams in various channels [across different] demographics, the more stable the company is over the long haul. Mossimo is a great [acquisition] for Iconix, and Target is very innovative for them," said Robert D'Loren, president and ceo of UCC Capital, Iconix's banker in both transactions.

According to D'Loren, the ideal acquisitions for Iconix are companies with royalty revenue streams and brands that consumers know. The company is looking at a broad range of fashion sectors, including accessories and footwear.

Iconix also at one point made a bid for Tommy Hilfiger, but Tommy bankers rejected its proposal. Although Tommy had a retail component, that would not be a deterrent for a firm that operates under a licensing business model. "Retail can be spun off, licensed to a group or franchised to a group. It's just another way, or different way, of looking at a business," D'Loren said.

Iconix also is said to have made overtures to Everlast Worldwide, even though the firm is not said to be up for sale, according to investment bankers not connected to either the Mossimo or the Mudd transactions. Cole said, "We don't discuss possible acquisitions."For the year ended Dec. 31, Iconix posted net income of $15.9 million, or 46 cents a diluted share, compared with income of $241,000, or 1 cent, last year. Licensing income was $30.2 million versus $10.6 million. The prior-year period had sales of $58.4 million. The company in 2004 transitioned from a manufacturing firm to a licensing business model.

Following the announcement of the two acquisitions, Iconix updated its earnings guidance. It expects earnings per share for fiscal 2006 in the range of 75 cents to 80 cents a diluted share. The company's previously EPS estimate was between 65 cents and 70 cents a share.

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