NEW YORK — The courtship is ending. Now it’s time for a $140 million hip-hop wedding.
Kellwood Co. has signed a definitive agreement to purchase Phat Fashions, the hip-hop-inspired apparel company owned and run by Russell Simmons, for $140 million in cash — plus what could be significant incentives that were not quantified.
WWD was the first to report last September that the two companies were in talks about a deal.
Phat Fashions will become a subsidiary of Kellwood with Simmons remaining in charge as chief executive. Simmons’ wife, Kimora Lee Simmons, will continue to head Baby Phat, the firm’s junior line, as president and creative director.
The transaction is expected to close in early February and be modestly accretive to Kellwood’s earnings in its first year.
Hal Upbin, chairman and ceo of Kellwood, said the company he heads had risen to meet Simmons’ challenge to the apparel market, first made two years ago, to realize the potential of the $10 billion urban market.
“See, I did it,” said Upbin at a press conference held here Thursday at the Bryant Park Hotel. “You can’t help but get ignited by that energy flow,” he said of the kinetic Simmons.
“This is not just another deal to Kellwood,” said Upbin, noting the Phat Fashions properties represent a new line of business for the vendor, a sentiment reflected by the press conference, which was complete with a mini fashion show.
Simmons, dressed in his signature tracksuit, noted, “This marketplace needs diversity,” and added that the deal with Kellwood would give his company the muscle to realize its potential.
Currently, about $70 million of Phat Fashions’ $260 million in revenues is derived from Baby Phat products. “Kimora is just beginning to shine — Baby Phat is growing faster than the men’s line,” said Simmons.
Kellwood’s president and chief operating officer, Robert C. Skinner Jr., agreed the Phat Fashions’ women’s business has the potential to equal the men’s, if not exceed it, since the women’s overall apparel market is significantly larger than the men’s.“It’s younger, newer, less developed,” said Skinner of Baby Phat. The executive added that Kellwood would work to further develop Phat Fashions’ licensing presence. This will include an intimate apparel line for Baby Phat, Kellwood said.
In addition to an already extensive portfolio of licensed products, including accessories, leather outerwear and a Motorola-branded cell phone, Simmons’ has other plans in the works for his company’s growth.
Among them, Simmons’ told WWD he plans to partner with fine jewelry maker Fabrikant, enhancing the Simmons Jewelry Co., which already has a deal with Grimoldi Swiss watches.
There also are plans for a higher-end Baby Phat collection, to debut during New York fashion week, and the possibility of a Phat Farm-inspired automobile, produced in conjunction with a major automobile manufacturer, which Simmons declined to name.
Simmons called the deal with Kellwood “the second step to building an institution for the next young generation of Americans.”
It’s been quite a trip so far.
Launched in 1992, Phat Farm started off exclusively for men, and in 1999, expanded into the sexy junior line, Baby Phat. There is also a girl’s line dubbed Baby Phat Girlz and Phat Farm Boys apparel. Kellwood, which also has a significant children’s business, will no doubt be looking to expand the Phat Fashions kids’ business.
While speculations about the deal has raged for several months, this isn’t Simmons’ first linkup with Kellwood. He and his brother, Joseph “Rev. Run” Simmons, signed a deal with the company in April 2003 to launch two street-inspired lines — Run Athletics and Def Jam University.
Prior to Phat Fashions, Kellwood’s most recent acquisition came in February 2003 when the firm bought pants and skirts maker Briggs New York Corp., a $200 million business. The vendor also has been busy setting up licensing agreements, such as those for Liz Claiborne dresses and suits, a Calvin Klein better women’s line and an Izod moderate women’s line with Phillips-Van Heusen and XOXO junior apparel with Global Brand Holdings.
In November, Kellwood said its profits for the nine months ended Nov. 1 shot up 72.1 percent to $57.8 million, or $2.14 a diluted share. Excluding results from a hosiery business sold Nov. 13, earnings from continuing operations jumped 80.5 percent to $59 million, or $2.19. Net sales for the period advanced 11.3 percent to $1.83 billion.Prior to news of the deal, which came after the market closed, shares of Kellwood fell 8 cents, or 0.2 percent, to end at $40.38 on the New York Stock Exchange.
While the deal marks a strengthening of Kellwood’s position in the urban market, it is not the only major company to pick up on hip-hop fashion. In November, Liz Claiborne acquired Enyce for $114 million, and in September, Sean “P. Diddy” Combs secured $100 million from California billionaire Ron Burkle to help in the growth of his Sean John brand.
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