VF TO BUY NORTH FACE

Byline: Thomas Cunningham / Arnold J. Karr

NEW YORK — VF Corp. came to The North Face’s rescue on Friday, and just in the nick of time.
On Friday apparel giant VF Corp. said it would purchase the once-high-flying maker of outdoor apparel and accessories for $2 a share, or about $25.4 million. The deal comes not a moment too soon for North Face, which said Thursday it might have to file for Chapter 11 bankruptcy protection if it could not renegotiate a credit facility scheduled to expire on April 15.
Under a definitive agreement between the Greensboro, N.C.-based VF and North Face, which is based in San Leandro, Calif., VF will open a cash tender offer for all of North Face’s shares. Including the stock purchase, assumption of debt and some fees, the total purchase price for North Face will be between $150 million and $160 million, according to a VF spokeswoman.
At the end of its third quarter last September, North Face’s debt stood at about $113.6 million.
The deal ends a prolonged period of turbulence for North Face, which in the last 14 months has suffered the loss of its chief executive, an accounting restatement and the cancellation of an earlier buyout bid at $17 a share. The boards of both companies have approved the merger, which is contingent upon a majority of North Face’s shares being tendered by shareholders.
In over-the-counter trading Friday, North Face shares gained 23/32 to close at 1 15/16, a 59 percent jump. On the New York Stock Exchange, VF lost 15/16 to close at 24 1/8.
“By acquiring The North Face, VF adds a global dimension to its growing portfolio of strong outdoor lifestyle brands,” Mackey McDonald, VF chairman and ceo, said in a statement. “We intend to uphold The North Face’s tradition of providing innovative, highly technical products to an intensely loyal consumer base. The brand will enhance our position in upper-tier channels of retail distribution and give us an ability to reach new customer segments in the outdoor apparel and gear markets.”
North Face’s ceo, Geoffrey Lurie, will continue with the company, reporting directly to McDonald, VF said. North Face hired Lurie, known for his experience turning around troubled companies, in 1999.
North Face, which has annual revenues of about $240 million, designs and distributes technical outerwear, sportswear, tents, sleeping bags, backpacks, daypacks, accessories and footwear. In the U.S., most of its products are distributed through specialty retailers like REI and Eastern Mountain Sports, although the firm owns eight full-price retail stores and 20 outlets. Outerwear generates about half of its sales.
Through its subsidiary La Sportiva USA and its affiliate La Sportiva SpA, North Face also makes rock-climbing shoes and rugged footwear under the La Sportiva name.
The acquisition further broadens VF’s international sales, as about 25 percent of North Face’s business is overseas. North Face’s leading European markets are the U.K., Germany, Italy, France, Spain, Sweden, Denmark and The Netherlands. The company also does business in Asia and Canada.
One big loser in the deal is North Face’s former ceo, James Fifield, who owns about 1.1 million North Face shares. Fifield, who paid $14 million for 665,060 North Face shares when he joined the firm in 1998, would receive only $2.2 million for his current holdings.
Fifield left the firm in September, after his bid to take the company private in conjunction with Los Angeles-based merchant bank Leonard Green & Partners unraveled, in part because of accounting errors at the firm. As a result of the accounting difficulties, North Face later restated its 1997 and 1998 financial statements downward by a total of $9 million.
While running the company Fifield, also racked up millions in charges to move the company’s headquarters from San Leandro to Carbondale, Colo., nearer his Aspen home. After Fifield resigned, North Face said it would take an additional $3.5 million charge to return its headquarters to San Leandro.
Expenses related to the failed buyout, Fifield’s severance package and the distribution problems took a toll on North Face’s bottom line. For the nine months ended Sept. 30, North Face lost $23.7 million against profits of $3.8 million, or 31 cents a share, a year earlier.
Sales in the period slipped 3.1 percent to $176.9 million from $182.5 million.
Yearend results are expected to be released when North Face files its next 10-K with the Securities and Exchange Commission on Friday.
North Face, which started using an outside distributor in July, had been struggling with shipping difficulties that also exacerbated its cash-flow problems, some market sources said.
But even with financial and distribution difficulties, its strong consumer franchise made it an appealing acquisition for VF. According to Cynthia Knoebel, VF’s director of investor and corporate communications, actions taken since Lurie’s arrival have helped to ease distribution and production problems “nearly 100 percent compared to six months ago. As badly as profits and sales were affected, this gives VF access to a very loyal consumer base at the upper end of the outdoor and lifestyle markets. That loyalty is still very much intact, and now we can bring additional sku management and operational discipline to the company as well.”
North Face reported that its “fall backlog is solid and demand strong.”
A source with one of the many companies that had looked at North Face in the past few months confirmed Knoebel’s account, adding, “There’s been no erosion in the consumer’s perception of the brand, and even the personnel situation there appears very stable. For a company that was facing bankruptcy, the employees were incredibly united in their loyalty to the company and their belief that it would make it through somehow.”
Tommy Hilfiger was among the companies said to be looking at North Face as its financial condition had worsened earlier this year.
North Face’s bank line was scheduled to expire at the end of March, but one source said that it received an extension until mid-April precisely because of the progress made in the negotiations with VF.
North Face, which was founded in 1965 as retailer of climbing and backpacking equipment, went public in 1996 at $14 per share and reached an all-time high of $33 later that year. However, its stock price never fully recovered from a slide that began in 1998, shortly after Fifield announced the plan to move the headquarters.
North Face shares set an all-time low of $1 on Thursday after the bankruptcy warning.
The North Face transaction is VF’s third major acquisition in a month. On Thursday, VF said it would buy the Chic and HIS brands from Chic by HIS, and in March VF agreed to buy the Eastpak backpack business from Sunbeam.