NEW YORK — Reed Krakoff is buying his namesake business from Coach Inc. for $10 in cash — proof, if any was needed, that it’s tough to build equity in a designer business even when backed by a powerhouse.
Under the deal inked July 29, Krakoff will also assume debts tied to the business and issue Coach 15 percent of the business’ “common membership interests.” Coach will also receive “convertible preferred membership interests” representing another 20 percent of the membership interest.
Sources familiar with the sale process said Krakoff had been courting potential partners, but ultimately had to shoulder most of the burden himself. According to a person familiar with the financial rundown shown to would-be investors, the business lost on the order of $35 million last year and was projected to continue to lose money for the next two years.
Coach detailed the deal in a filing with the Securities and Exchange Commission late Friday, listing the buyers as the designer and Reed Krakoff Investments LLC. Krakoff has been one of fashion’s most highly paid executives for years, and from 2010 through 2012 alone saw total compensation of more than $60 million, some of which came in the form of stock and option awards.
Krakoff agreed to resign as president and executive creative director at Coach when the buyout is complete or when the deal is terminated, whichever comes first. Both Coach and Krakoff have the right to terminate the deal if it isn’t closed by the end of the month. The deal contemplates certain other agreements, including potentially a two-year, $20 million loan from Coach to fund the Krakoff business. That financing would not take effect if the designer is able to find additional equity financing before the deal closes.
If the deal does not close because the designer can’t find additional financing, he agreed to forfeit $3 million in severance compensation and an additional $3 million a month beginning this month until the deal is terminated.
The business began as an initiative to drive brand creativity at Coach in 2008 and later evolved into a Reed Krakoff brand — a take on “New American luxury,” according an earlier regulatory filing.