Hanesbrands Inc. may have just revealed one acquisition, but more may be on the way.
Shares of Hanesbrands Inc. rose 6.3 percent on Thursday to close at $29.53 as investors appeared to cheer the group’s $800 million, all-cash deal to buy Australia’s Pacific Brands Ltd. Executives from Hanesbrands hinted that more deals are likely.
The company disclosed the transaction Wednesday night, after the equity markets in the U.S. closed their trading sessions. Pacific Brands is the number one underwear and intimates firm in Australia. The transaction expands Hanesbrands’ portfolio by adding Bonds, the number-one men’s and women’s underwear brand in the basics category, and Berlei, a leading premium bra brand. The boards of both publicly traded firms have approved the transaction. Pacific Brands shareholders still have to approve the deal, with a meeting date likely in late June. Presuming they approve, the transaction could close in the third quarter.
The American intimates firm said the deal is immediately accretive to the company’s adjusted earnings per share and will deliver an after-tax internal rate of return in the middle teens. The deal represents the sixth acquisition for Hanesbrands over the past three years and the second one this month. On April 7, Hanesbrands said it would acquire the privately held Champion Europe in an all-cash transaction, a move that allows the company to unite the Champion brand globally. Hanesbrands owns Champion in the Americas, Asia and Australia.
Richard A. Noll, Hanesbrands chairman and chief executive officer, during a call Thursday morning to Wall Street analysts, said, “When we acquire, we naturally get the target’s base operating profits. But more importantly, we create even more value via synergies. For example, our completed acquisitions have brought with them $120 million operating profit, to which we add another $170 million through synergies. These results have created great returns for our shareholders.”
Noll said the Champion Europe and Pacific Brands deals makes Hanesbrands the “largest basic apparel company in the world with 30 percent of our revenue outside the U.S. and the number-one or number-two market positions in 12 countries.”
The ceo said the company annually would have more than $7 billion in sales, $1.1 billion in operating profit and a midteens margin and more than $1 billion in cash flow from operations.
Noll suggested that more deals could be forthcoming: “This is a remarkable change. But the reality is, we’ve only begun to hit our stride. Given the scalability of our business model and the potential over our acquisition pipeline, there is ample opportunity to create value for many years to come.”
Gerald Evans, the company’s chief operating officer, said there was substantial cost synergy opportunities as well as meaningful revenue growth potential after applying Hanesbrands’ Innovate-to-Elevate strategy onto Pacific Brands’ base business and by leveraging “our low-cost global supply chain.” The company is projecting that Pacific Brands could contribute annually “over $700 million in revenues, $100 million in operating profit and 25 cents in earnings per share within three years once synergies are fully realized,” Evans said.
In an announcement through the Australian Stock Exchange, Pacific Brands described the offer as an “unsolicited proposal.”
Pacific Brands chairman Peter Bush said, “Hanesbrands has recognized the work done over the past two years that has seen the board and management team under ceo David Bortolussi’s leadership reshape and simplify the business to focus on our highest quality brands and improve operational performance.”
Wells Fargo Securities’ Ike Boruchow said the transaction fits HBI’s four primary acquisition criteria: a core category; complementary revenue growth; justifiable purchase on highly visible synergies alone, and immediately accretive.
FBR Capital Markets’ Susan Anderson said, “The acquisition fits well within Hanesbrands’ portfolio-expertise as Pacific Brands’ innerwear brands have similar positioning to [Hanesbrands’] brands in the U.S.”