NEW YORK — Jones Apparel Group is up for sale, and any buyer is likely to be a private equity player.
The $5 billion company’s announcement Tuesday that it is exploring a possible sale confirms a page-one exclusive in WWD that day.
Sources in the financial and vendor community said a sale could be finalized within six weeks, and Jones would not accept an offer of less than $40 a share, which would value the group at $4.56 billion. Another source said the company is already in discussions with at least one private equity company, but the name of the firm could not be learned.
Looking at the pool of financial players who made investments in the apparel and retail sector over the past year, companies likely to eye Jones include Apax Partners Inc., which just bought Tommy Hilfiger; Apollo Management LP; Cerberus Capital Management LP, which owns Mervyn’s, and the Texas Pacific Group, owner of Neiman Marcus Group and J. Crew.
Jones’ announcement Tuesday caught many in the industry and on Wall Street off guard because Jones has consistently delivered sales growth and is not considered a distressed company. However, its stock has been flat for the past few years, trading in the $30 range. Shares of the stock ended the day Tuesday up 13.04 percent to $34.84.
In a briefly worded statement after trading on Jones’ stock was halted Tuesday, the company said it has hired Goldman, Sachs & Co. as its financial adviser “to assist in this process.” Jones also said, “Contrary to recent press reports, the company is not currently considering the divestiture of any of its businesses or divisions.”
The statement went on to say that Jones would not “disclose developments with respect to the exploration of a possible sale unless and until its board of directors has approved a definitive transaction or a decision not to proceed with a sale of the company is made.” But during a previously scheduled address Tuesday to a Merrill Lynch investor conference, Peter Boneparth, chief executive officer, was more forthcoming.
During the question-and-answer session, the ceo said the company is very focused on shareholder value. Jones’ board, he said, is “looking at both the external and internal factors, both what our business looks like, what the valuation of the share price is, what we think is out there. I think that they [the board members] are doing the prudent thing. So, it is not like it happens on a one-day event; it is obviously an ongoing discussion for a long period of time.”
Boneparth’s otherwise prepared remarks given before the Q&A session were similar to an address the ceo made a week ago at the Bank of America consumer conference. “Our strategy has been really very simple, if you put it into some sort of formula. If you have the best brands and you combine with the operational excellence, you maximize your operating cash flow, and that’s going to make you a long-term winner,” Boneparth said.
Merrill Lynch analyst Virginia Genereux said in a research report released late Tuesday that it was “odd” that Jones’ statement “would seemingly preclude a breakup, which in our view would optimize shareholder value.” She said, “Selling the brand piecemeal optimizes shareholder value, but a successful auction may require leaving some on the table for a financial buyer.” Still, she said, there are challenges to a “multifront auction” that might make selling the entire company “more likely.”
For her part, Genereux does not see a specific strategic bidder for Jones, given the size of its valuation and brand profile. Instead, she thinks a private equity firm would be a more likely successful bidder. “We see the Jones situation as fairly unique in that the stock has dramatically underperformed for the past five years and management’s operating skill has been called into question, leading the board to consider alternatives,” Genereux wrote.
“It’s pretty straight forward,” said Marc Cooper, managing director at Peter J. Solomon, the investment banking firm that sold the Kasper and Anne Klein brands, as well as Barneys New York, to Jones. “The board is saying, ‘Are we better off selling or staying as an independent company?’ It goes to growth and valuation. The board is being very opportunistic.”
Cooper said the current acquisition environment is an exciting one because private equity has money to spend — about $100 billion worldwide — and investors are still very much interested in the fashion and retail space.
Cooper added the public market place is not making it easy for large firms such as Jones because it is “harder and harder to grow, and harder and harder to capture more and more of the share of consumers’ wallets.”
Financial investors believe Barneys alone could be worth $1 billion, but Cooper wasn’t so sure. Jones bought Barneys for nearly $400 million in December 2004. But Cooper agreed that if one were to analyze the Neiman Marcus sale to two private equity firms, Texas Pacific Group and Warburg Pincus, multiples have gone up by about 30 percent since the sale of Barneys.
Harrison said although private equity firms have joined together on other retail deals, they have traditionally shied away from apparel because of the seasonality, cyclicality and ever-changing fashion tastes. But Jones would be different because its business is more diverse.
A sell-side analyst noted that many of the moderate brands under Jones’ umbrella appear to be weakening compared with similar brands owned by competitor Liz Claiborne. The analyst emphasized that the Jones brands, given the right management, could be turned around. The analyst expects the buyer to be a financial player, who would then sell off parts of the operation while keeping Barneys New York. The new owner might use the cash from the sales of the divisions to try to buy Saks Fifth Avenue, the analyst speculated.
Jones said it wasn’t planning to sell the assets individually, but private equity firms are expected to circle around the businesses, hoping Jones changes its mind. “This is where you have the sum of the parts possibly worth more than the whole,” said one institutional investor.
The sale of Jones in its entirety is likely to generate a price tag of at least $37 a share, said one financial source. The source added that a breakup of the company could bring as much as $40-plus per share.
Under a breakup scenario, said one former investment banker, Barneys could get a $1 billion price tag, while Nine West is likely to be worth about $1.8 billion. The rest of the business, which includes a wholesale volume of $1.5 billion annually, is worth about $3 billion, or a total of $5.8 billion. After subtracting about $1.15 billion in debt, with 114 million shares outstanding, the price tag is about $40 a share.
Analyst Jennifer Black of the firm that bears her name said, “This is very significant. I think this is a pivotal point in the apparel industry — the beginning of a series of changes. It is a good move for Jones, and in the best interests for shareholders. The company still has the brands that consumers want, and those brands [eventually may be in] different formats, depending on how a buyer can better position the brands.”
Andrew Jassin, partner in the Jassin O’Rourke Group, a consulting firm here, said, “On a divisional basis, Jones hasn’t been doing as well. Some of their competition, Oxford Industries and Liz Claiborne, are looking at younger opportunities [brands] to acquire.” He said Jones decided to go to the retail route, with its Barneys acquisition, but its brands have gotten old, as have its customers.
Jassin said Jones didn’t go after a lot of younger brands because they were too small, and the company had a sales threshold for acquisitions that are $100 million or more.
Harry Bernard, executive vice president and chief marketing officer of Colton Bernard, said much of [Jones’] “business is stuck in the toughest segment of the market unless they start acquiring other luxury firms … but then they’ll be competing on a global scale. They’ll be facing VF in the moderate area, and the Italians and the French, who are almost in every area.”
Trading in shares of Jones was halted at 10:06 a.m. during Tuesday’s New York Stock Exchange session when the stock was at $33.69. Trading was stopped awaiting news from the company. Just past 11 a.m., Jones released its statement saying it is exploring the sale of the company.
Shares of the company then zoomed to $35.50 — above the most recent 52-week intraday high hit in March 2005 — when trading resumed around 11:15 a.m.Through The Years:
1970: Sydney Kimmel founded Jones Apparel Division of W.R. Grace & Co. and became president.
1975: Kimmel and a partner bought the Jones division from W.R. Grace & Co. and incorporated it as Jones Apparel Group.
1987: After almost 10 years of profitability, Jones suffered net losses beginning in 1985 and running through
1987: The company returned to profitability in 1988 following a successful turnaround.
1991: Jones became a public company on May 15, when it was listed on the New York Stock Exchange.
1993: Jones purchased the Evan-Picone label.
1995: Polo Ralph Lauren Corp. and Jones established a licensing agreement that resulted in the Lauren by Ralph Lauren line.
1996: Jones reaches $1 billion in sales.
1998: Jones purchased Sun Apparel Inc. in October. Sun produces jeanswear and sportswear that are marketed under the Polo Jeans Company brand. Jones also announced its first public debt offering, $265 million in senior notes due in 2001, and a $550 million bank credit facility to pay for the acquisition.
1999: In June, Jones announced the completion of its acquisition of Nine West Group Inc. Nine West includes Nine West, Easy Spirit, Bandolino and Enzo Angiolini labels.
2000: Jones acquired the Canadian license for several Polo Ralph Lauren brands in April. In July, the company acquired Victoria + Co. Ltd.
2001: Jones completed its acquisition of Judith Jack LLC, a manufacturer and distributor of women’s jewelry sold in better department stores and specialty retailers, in April. In June, Jones acquired the McNaughton Apparel Group. 2002: Jones completed its acquisition of Gloria Vanderbilt Apparel Group in April. In August, Jones purchased RSV Sport Inc. and related companies, also known as L.E.I.
2003: Kasper Ltd. was acquired by Jones in August, a deal that encompassed brands that include Kasper, Anne Klein, Le Suit and Albert Nipon. Jones agreements with Polo Ralph Lauren ended in 2003 following a dispute between the two companies.
2004: In July, Jones completed its acquisition of Maxwell Show Co. Inc. In December, the company completed its deal for luxury retailer Barneys New York Inc.
— With contributions from Arthur Zaczkiewicz, Meredith Derby, Lisa Lockwood, Amy S. Choi and Liza Casabona
The Brands And Stores
Wholesale Better Apparel: Jones New York, Jones New York Signature, Jones New York Sport, Jones Jeans, Jones New York Country, Jones New York Dress, Jones New York Suit, Nine West, Anne Klein New York, AK Anne Klein, AK Sport, Anne Klein Dress, Kasper, Albert Nipon, Evan-Picone Dress, Le Suit
Wholesale Moderate Apparel: Jones Wear, Jones Wear Jeans, Nine & Co., Bandolino, Norton McNaughton, Gloria Vanderbilt, Evan-Picone, Energie, Erika, l.e.i., Jeanstar, A/Line, Pappagallo, Rena Rowan, Glo/Glo Girls, Whip-O-Will, C.L.O.T.H.E.S., W
Footwear: Bridget Shuster, Circa Joan & David, Albert Nipon, Garolini, Boutique 58, Nine West, Nine West Kids, Enzo Angiolini, AK Anne Klein, Bandolino, Easy Spirit, Nine & Co., Westies, Pappagallo, Gloria Vanderbilt, Mootsies Tootsies, Mootsies Tootsies Kids, Sam & Libby, Sam & Libby Kids, Dockers Women, Jones Wear
Accessories: Bridget Shuster, Anne Klein New York, Judith Jack, Jones New York, Nine West, Givenchy, Bandolino, Nine & Co., Gloria Vanderbilt, A/Line, Napier, l.e.i.
Retail Stores/Number of Units:
Outlet Stores/Number of Units:
Jones New York/156
Barneys New York/12
Joan & David/1
* Licensed footwear department