Activist investor Ryan Drexler of Consac LLC is making his third push for a sale of Quiksilver Inc. in less than seven months, and this time he’s offering names of potential buyers — Nike Inc. and VF Corp.
This story first appeared in the April 24, 2015 issue of WWD. Subscribe Today.
Consac has increased its holdings in Quiksilver to more than 3.5 million shares, or about 2 percent of those outstanding, from more than 2 million when he first contacted the troubled Huntington Beach, Calif.-based skate- and surf-focused apparel and footwear firm to push for an exploration of a sale in October.
But neither last month’s dismissal of Andy Mooney as chief executive officer nor founder Bob McKnight’s return to the firm as chairman have lessened his conviction that the company’s performance is a source of “continuing and profound disappointment” and that a sale process should be effected “before things get worse.”
In his view, the situation has deteriorated, with first-quarter adjusted earnings before interest, taxes, depreciation and amortization down 38.6 percent, a drop in the stock of 26 percent from a one-month high in March and, just prior to Mooney’s dismissal and McKnight’s return, the admission of a lack of internal controls that led to a “revenue cutoff” problem and the restatement of prior quarterly results.
In a letter addressed to McKnight, Drexler argued, “Despite the company’s management-created flaws, there is still value in Quiksilver, especially to a strategic buyer such as Nike Inc. or VF Corp. The market capitalization of less than $300 million — almost a fifth of the market cap from barely two years ago — is nowhere near a reflection of the inherent value of the company’s brands, extensive network of more than 700 stores and potential operating efficiencies.
“I believe the company could be worth at least twice its current market capitalization,” he wrote. With Quiksilver looking to reduce its selling, general and administrative costs, currently about half of its sales, companies like Nike, with its SG&A at less than 32 percent, and VF, at 34 percent, “could pay for the acquisition from the savings alone by rationalizing Quiksilver’s bloated SG&A.”
In the first quarter ended Jan. 31, SG&A dropped 16.3 percent to $170.5 million, or 50 percent of sales. Revenues were down 13.7 percent to $340.9 million.
VF declined to comment on Drexler’s suggestion. Officials at Nike and Quiksilver didn’t respond to requests for comment.
Quiksilver’s shares Thursday were unchanged at $1.76.