Collective Sale Buzz Heats Up

Collective Sale Buzz Heats Up
A Payless location.

The industry has come alive with speculation about who the potential acquirer of Collective Brands Inc., or at least part of its assets, could be.
 
Collective’s shares climbed 2.3 percent in trading Tuesday, sparking takeover chatter, especially as most other footwear stocks slipped on the threat of Standard & Poor’s downgrading the eurozone’s credit rating.
 
“They’re definitely very serious about [a sale], but we just don’t know if it’s in pieces or as a whole,” said Christopher Svezia, an analyst at Susquehanna Financial.
 
Industry experts said private equity firms could edge out other companies in the takeover bid, given the economic environment and the need for a quick turnaround of the Payless ShoeSource unit. Among the possible contenders, they pointed to Bain Capital and Leonard Green & Partners as shops known for their prowess at such jobs.
 
Plus, prospective buyers would have to pay cash and absorb Collective’s debt, which stood at $606 million as of Oct. 29, and one banker who spoke on condition of anonymity said, “It’s the private equity guys that have the money now.”
 
Private equity firms are also better at “cleaning up messes,” noted Paul Swinand, analyst at Morningstar Inc., “because they take it private, start cutting costs and do stuff that other people wouldn’t do. That’s how they create value.”
 
Svezia agreed: “It’s not the prettiest company given that a lot of work needs to get done. If someone can get [Collective’s Performance & Lifestyle Group] for $1 billion, they could sell off smaller pieces of that and recapture some of the investment.”
 
Insiders also said firms such as DSW Inc., Foot Locker Inc. and VF Corp. could be interested, although the latter recently completed its $2.3 billion acquisition of Timberland.
 
“VF would be interested in a shining asset like Saucony, but they would not be interested in the retail assets. It’s like buying a diamond ring with a whole bunch of other stones on it, so they’d have to pay a premium to get [the part they want],” said Swinand, adding that the PLG wholesale business could go for at least 10 times its EBITDA, or about $1 billion, assuming the segment’s continued growth of about 25 percent. “I could see Nike wanting Keds and Sperry Top-Sider. They’ve been very acquisitive in lifestyle.”

Meanwhile, Kate McShane, analyst at Citi Investment Research, noted, “Brown Shoe could be another interested party, potentially in specific shoe brands to distribute in its retail channel. Finish Line is most likely focused on specialty running retail, but we acknowledge Saucony has been a good, solid brand. Iconix would likely be focused on the non-retail assets such as Sperry Top-Sider or Keds. … This would be the firm’s first foray into a pure footwear brand.”

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