G-III Apparel Group saw its shares fall by more than 4 percent to $47.95 in early trading today after it agreed to buy Donna Karen International from LVMH Moët Hennessy Louis Vuitton for $650 million.
The transaction is expected to close in late 2016 or early 2017. LVMH had acquired DKI in 2001 for $643 million.
The sale represents the end of a long-running struggle by LVMH to turn Donna Karan into an American luxury brand on par with the others in the group’s stables — and represents a rare stumble by luxury titan Bernard Arnault. The French stock market was cheered by LVMH’s decision to cut its losses, sending the company’s shares up 1.2 percent to 144 euros, or $158.40 at current exchange.
Morris Goldfarb, chairman, chief executive officer and president of G-III, the $2.4 billion diversified apparel company, said, “Donna Karan International is an iconic global fashion company. Its lifestyle aesthetic resonates well with consumers throughout the world. We are excited to build upon its strong foundation as we seek to capitalize on a significant market opportunity. Donna Karan brings increased scale and diversification, while providing incremental growth on top of our portfolio of some the best fashion brands in the world. We believe we are well positioned to create and sustain additional value for our shareholders, partners and customers.”
Toni Belloni, group managing director of LVMH, said, “Donna Karan International has a deep heritage, global recognition, and renewed energy. We believe the DKNY brand has a dynamic position in the market, and when G-III approached us about acquiring the brand, we concluded that the time was right and that G-III was the right steward going forward.”
He added that he believes G-III has “the expertise and capabilities to broaden the brand’s distribution and take it to the next level of success.”
In addition, Belloni said, “We are grateful to ceo Caroline Brown, creative directors Maxwell Osborne and Dao-Yi Chow, and the entire management and design teams for the strategic actions that created a platform to support DKNY’s continued growth.”
G-III doesn’t plan to update its financial guidance to reflect the effect of the acquisition until it has closed, although G-III added that, excluding purchase accounting charges and other adjustment, it preliminarily expects the acquisition to be dilutive in the fiscal year ending Jan. 31, 2018, and accretive thereafter.
G-III plans to fund the acquisition through new indebtedness, $75 million of newly issued G-III common stock to LVMH, and a $75 million, six-and-a-half-year seller note. In connection with the acquisition, G-III has obtained financing commitments from Barclays and JP Morgan Chase Bank N.A. for a $525 million, ABL credit facility and a $450 million six-year term loan. The closing of the transaction is not subject to financing conditions.
Barclays is acting as exclusive financial adviser to G-III. Norton Rose Fulbright US LLP and Simpson Thacher & Bartlett LLP are acting as legal advisers to G-III. Barack Ferrazzano Kirschbaum & Nagelberg LLP is acting as legal adviser to LVMH.
In the last several years, G-III has successfully transformed itself into a broad-based apparel company, as it has pursued a diversification strategy.
G-III manufactures and distributes apparel and accessories under licensed brands, owned brands and private label brands. Its own brands include Vilebrequin, Andrew Marc, Marc New York, Bass G.H. Bass, Weejuns, G-III Sports by Carl Banks, Eliza J, Black Rivet and Jessica Howard. It has licensed businesses with Calvin Klein, Tommy Hilfiger, Karl Lagerfeld, Kenneth Cole, Cole Haan, Guess, Jones New York, Jessica Simpson, Vince Camuto, Ivanka Trump, Ellen Tracy, Kensie, Levi’s and Dockers brands. Through its team sports business, G-III has licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League, Hands High, Touch by Alyssa Milano and more than 100 U.S. colleges and universities. G-III also operates retail stores under the Wilsons Leather, Bass, G.H. Bass & Co., Vilebrequin and Calvin Klein Performance names.
In February, G-III signed a multiyear licensing agreement with PVH Corp. to design, produce and distribute Tommy Hilfiger women’s wear collections in the U.S. and Canada. G-III is also the licensee for Calvin Klein’s women’s sportswear, suits, dresses, performance wear, handbags, luggage and cold weather accessories. It is the second-largest licensee for the Calvin Klein brand.
For the first quarter, G-III’s net income was $2.8 million, compared to $6.8 million in the year ago quarter, while net sales reached a record of $457.4 million compared to $433 million in the year-ago quarter.
There have been continual reports over the last decade or more that LVMH was looking to sell DKI, even though LVMH typically doesn’t sell its properties. Last year, DKI suspended the production of the Donna Karan Collection to focus the entire company around the DKNY brand and removed Donna Karan from the top creative role. The company also replaced Jane Chung, executive vice president of design at DKNY, with Chow and Osborne, the founders and creative directors of Public School, who are now co-creative directors of DKNY.
A source familiar with the deal said that Chow, Osborne and Brown are expected to stay on through at least the closing. G-III is expected to come out with an announcement of the company’s plans going forward.
In the last year under Brown’s leadership, DKI has changed several senior executives, closed the Madison Avenue flagship at 60th Street and launched new image campaigns. In March, DKNY unveiled a new store concept on West Broadway in SoHo. For Osborne and Chow, the SoHo redesign represented the next chapter in DKNY’s evolution. Earlier this month, the company unveiled a completely redesigned 1,468-square-foot store at the Forum Shop at Caesars Palace in Las Vegas.
DKI has seen several key executive changes throughout the year, including several longtime employees such as Mary Wang, former president of DKNY, and Carol Sharpe, president of retail at DKNY. In March, Hector Muelas, chief image officer at DKI, exited the firm after less than a year in the role.
Chow and Osborne have only designed DKNY for two seasons and the collection is in the early stages of a rebuilding mode, but LVMH executives have said DKNY has been performing well.
Still, DKI remained a drag on its parent. In April, LVMH said discontinued lines at DKI (the DKNY Jeans and DKNYC ranges) and Marc Jacobs International contributed to stalled first-quarter sales at the group’s fashion and leather goods division.
DKI was established in 1984, and DKNY was launched in 1989. The DKNY brand currently generates more than $300 million in volume and has offices in New York, Milan and Hong Kong. It also has stores throughout the U.S., Asia and Europe.