MOODY’S CONFIRMS JONES DEBT

Byline: Vicki M. Young

NEW YORK — Moody’s Investors Service on Tuesday confirmed the debt ratings of Jones Apparel Group Inc. following the fashion firm’s announcement Monday that it would acquire McNaughton Apparel Group Inc.
Moody’s said the debt ratings confirmation is based upon the “strategic fit of McNaughton into Jones’s existing business in the moderate priced channel and Jones’s history of successfully integrating acquisitions.” The ratings agency added that the diversification of products and price points to Jones’s revenue stream is a “key success factor for an apparel company as it helps to offset weakness in any one retail sector and reduces the reliance on any one customer demographic.”
In a separate development Tuesday, Jones said in a Form 8-K filed with the Securities and Exchange Commission that the deal can be terminated by either party if it isn’t completed by Nov. 30. McNaughton would be responsible for a $10 million breakup fee in the event that McNaughton enters into a definitive acquisition agreement with another firm within 12 months of the deal’s termination or if Jones terminates the deal because it’s been changed or withdrawn by McNaughton’s board.
Late Monday, as reported, Standard & Poor’s revised its outlook on Jones to negative from stable because of S&P’s estimate of below-average pro forma credit protection measures for 2000.
Wall Street, for the most part, liked the acquisition news. Christine Kilton-Augustine at ING Barings said in a research brief that she expects McNaughton “to continue to deliver double-digit top-line growth” and margin expansion under the Jones umbrella.
Todd Slater of Lazard Freres & Co. wrote that the acquisition will make Jones “a dominant player in the lower-margined moderate market where [Jones] has not had overwhelming success.” He added that McNaughton has scale, is gaining share and its chief executive, Peter Boneparth, is an “excellent addition to the Jones management team.”

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