QUIKSILVER SIGNS $66 MILLION DEAL TO BUY AUSTRALIAN FIRM

Byline: Kristi Ellis

LOS ANGELES — Quiksilver Inc., which counts the hot Roxy junior label among its brands, is riding an expansion wave.
The company, based in Huntington Beach, Calif., has signed a letter of intent to acquire its Australian counterpart, Quiksilver International Pty Ltd., for an estimated $66 million to be paid out over the next five years. The deal is expected to close in the next 60 days.
According to the terms of the deal, the purchase price will be paid in three equal installments, the first of which will total about $22 million to be paid upon closing. The second and third installments will be paid in 2002 and 2005, with final pricing determined by an earn-out agreement.
“From a financial standpoint, we expect this acquisition to be only mildly accretive this year, but longer term we believe this will become very meaningful to our bottom line,” said Robert B. McKnight Jr., chairman and chief executive officer of Quicksilver Inc., in a statement. “Strategically, we will now have the opportunity to go into existing and new territories, further leverage our product, brand and marketing, and maximize the opportunities that exist in those markets.”
Australian Alan Green, a majority shareholder in Quiksilver International, founded the Quiksilver brand in 1970. Quiksilver International has a total of 17 license and distribution agreements including those for Quiksilver Inc.’s current export business in Canada, Central and South America, and its European subsidiary, Na Pali.
Royalties accrued by Quik-silver International last year were approximately $10 million, according to Joe Teklits, an analyst with Ferris Baker Watts.
Quiksilver Inc. has owned the Quiksilver trademark in the U.S., Mexico and Puerto Rico since 1986.
“It’s the right time to bring Quiksilver under one common management,” Green said in the statement. “When we started Quiksilver nearly 30 years ago, we hardly dreamed it would develop into the lifestyle brand that it has become today.”
This is the U.S. company’s third major new growth vehicle announced in the past six months, said Teklits. The other two include a women’s contemporary line, which will be launched in spring 2001, and the February acquisition of Hawk Designs, the maker of the Tony Hawk skateboard apparel line.
“They are making this one entity rather than spreading the brand across 18 entities [including the licensees],” said Teklits.
He noted that it is a “positive move” on the part of Quiksilver, noting that it will add 4 cents per share to earnings next year.
“This creates a lot of opportunities for Quiksilver,” said Teklits, citing the potential to acquire licensees in the next few years.
Teklits also noted that Quiksilver, which is a licensee of the European brand, will be able to introduce more product categories into Europe, including Roxy footwear and fragrance, if the deal is approved.
“The European licensor wouldn’t allow Quiksilver to introduce product categories other than apparel for fear of cannibalization,” Teklits said.
Quiksilver Inc. reported a 21.6 gain in earnings to $4.1 million for the first quarter ended Jan. 31, with sales up 16.3 percent to $99.9 million. There were sales gains of 18 percent in men’s and 15 percent in women’s. This followed a year when profits rose 48.3 percent to $26.7 million and sales gained 40.4 percent to $443.7 million.