By  on December 26, 2000

LOS ANGELES -- Max Azria and Canada's Algo Group have finalized details of their strategic alliance in a multifaceted transaction giving Max Azria Finance Inc., a Canadian affiliate of Los Angeles-based BCBG Max Azria, a 29.81 percent stake in Montreal-based Algo.

Azria, president of AZ3, the maker of BCBG Max Azria and other labels, paid about $4 million for the stake, including $3.3 million for 21 million class A voting shares of Algo at a price of about 16 cents a share and, in a separate but related transaction, approximately $650,000 for 9.4 million class A voting shares at approximately 7 cents each. The latter purchase was made from 3739091 Canada, a company controlled by Algo chairman Dan Elituv.

Elituv's firm exercised a warrant and acquired 8.3 million shares of Algo at about 9 cents a share, an aggregate price of about $769,000. All figures are converted from the Canadian dollar at current exchange.

The series of transactions left Elituv's company with 34.65 percent of Algo's common voting shares on a fully diluted basis.

As expected since Algo and BCBG announced their alliance in October, Azria has joined Algo's board of directors.

Algo, which has worked to recover from two years of steep losses, becomes the Canadian licensee for all apparel, accessories and footwear under the BCBG Max Azria brand, as well as the Parallel contemporary and To The Max junior labels owned by AZ3.

The deal also involves BCBG in Algo's business south of the Canadian border and into Mexico.

As reported, the BCBG label will continue to be made under the auspices of Azria's company while Algo will be actively involved in making, as well as selling and distributing, the Parallel and To The Max labels for the Canadian market and elsewhere.

The licensing agreement does not include Azria's couture/deluxe designer ready-to-wear label, Herve Leger, acquired by AZ3 in 1998.

"There are different aspects of the deal," said Raoul Heredia, Algo's president and chief executive. "It is in its infancy and it is about globalization."

In addition to the exclusive distribution agreement for the three apparel labels, the transaction gives Algo the rights to footwear. Azria currently produces footwear on a private label basis in Canada.Heredia said that Algo will initially take over the private label distribution of To The Max, BCBG Max Azria and Max Azria shoes in Canada and eventually develop two footwear lines under the Algo label for distribution in North America.

Lastly, Algo plans to capitalize on its strong Canadian dress business and become a supplier to the North American market.

"We will try to develop distribution with Max's contacts but on a different level, which is more moderately priced," Heredia said. "Brand recognition is all important in today's highly competitive retail environment. Our experience with branded products has been successful and we are genuinely excited with the prospects provided by the BCBG Max Azria group."

Calling it his "new baby," Azria said the move is "the best way for BCBG to grow its brand in Canada."

He noted that he retained the rights to his firm's retail business in Canada while Algo acquired wholesale distribution.

BCBG currently operates seven stores in Canada and plans four more next year.

Azria has said that the agreement could elevate Algo's U.S. sales to 75 percent of its total and also boost his company's business in Canada to 10 percent of revenues from its current level of 3 percent.

In Algo's statement, Elituv called Azria "a true partner. He has delivered to us all that he promised and has made a substantial investment in the company."

Algo has seen its sales slump and earnings evaporate in recent years. Last year, the company had a net loss of $7.1 million on sales of $114.1 million, as weakness in the Canadian retail market forced it to undertake significant restructuring and the elimination of unprofitable businesses.

AZ3 is expected to hit $350 million in worldwide volume this year and could hit $450 million next year, Azria said.

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