NEW YORK — Although Foot Locker has kept mum on a potential sale of the company, WWD has learned Kohlberg Kravis Roberts & Co. is a lead contender to buy the footwear company, possibly in a bid with Apollo Management.
A deal could happen within the next two to three weeks, according to private equity sources, who also said the bid price could be higher than $30, which was the price mentioned in May when WWD first reported Foot Locker was being targeted for a leveraged buyout.
Apollo and Thomas H. Lee Partners initially were said to be interested in acquiring Foot Locker in a leveraged buyout. The Blackstone Group was also named as a possible bidder.
Shares of Foot Locker closed at $24.84, up 3 cents, in trading on the New York Stock Exchange Friday. A buyout at $30 per share, or a deal of around $4.4 billion, would represent a 25 percent premium on the stock, based on its average trading range of $24 in the last two months.
Spokesmen for KKR and Apollo declined comment. A spokesman for Foot Locker did not return calls.
Credit analysts and investment bankers said late last month that private equity firms are trying to get deals done sooner rather than later because financing might be harder to complete later in the year due to a possible slowing in the economy and fluctuations in the stock market. Several analysts cited the $6 billion acquisition of arts and crafts retailer Michaels Stores Inc. by Bain Capital and the Blackstone Group as an example of how quickly LBOs are completed and how costly they are. The deal garnered a 30 percent premium on the stock price and took about three months to close.
Some financial sources said Foot Locker might come at a similar premium, which could push the purchase price closer to $32 a share. They compare the athletic chain to Michaels in that both are specialty niche retailers who have a sizable market share and are substantial cash-flow generators.
Investment bankers said private equity firms began targeting Foot Locker as an LBO candidate because it is considered a consistent generator of cash flow, which would help a buyer pay down the debt incurred in the purchase. In 2005, Foot Locker generated $260 million in cash, a financial contact said.
The New York retailer operates 4,000 stores in 20 countries in North America, Europe and Australia. It operates a number of nameplates under its umbrella: Foot Locker, Footaction, Lady Foot Locker, Kids Foot Locker and Champs Sports, in addition to footlocker.com. In addition to athletic and casual footwear, Foot Locker sells a large amount of athletic apparel.
Sources close to Foot Locker said the company at one point considered acquisitions of its own, but then elected to pursue a sale. As reported, a one-page memorandum outlining the retailer’s specifics began circulating in mid-May. In early June, sources close to the athletic retailer said its proposal to buy Famous Footwear in a deal valued at $700 million was rejected by Brown Shoe, Famous Footwear’s parent.
Virginia Genereux, an analyst at Merrill Lynch, wrote in a May 23 research note, “While Locker appears to have little organic growth or breakup value, cash flows are among the more consistent in specialty retail and inventory reduction is a likely cash-flow opportunity.”