What’s In It for Wolverine?

What's In It for Wolverine?
Saucony’s Kinvara TR trail runner for men

Industry players said the Saucony brand would be the biggest benefit to Wolverine World Wide Inc., should it win the high-stakes bid for Collective Brands Inc.

[UPDATE: Wolverine Consortium Acquires Collective Brands for $2B]

Shares of Wolverine were 6.3 percent higher at mid-day Monday, as market chatter suggested the firm is in the leading position to acquire the embattled Payless ShoeSource owner, in conjunction with San Francisco-based private equity firm Golden Gate Capital.

“I can see with Saucony that Wolverine will get a brand to help lever the Merrell part of the running business and get more expertise. [Collective’s] Sperry Top-Sider brand is also very hot,” said Sam Poser, analyst at Sterne Agee. “The rest, I can’t say.”

Paul Swinand, analyst at Morningstar Inc., agreed: “Saucony is an athletic brand, which is something Wolverine doesn’t have,” Swinand said, though he added there might be other companies better suited to Collective’s other brands.

Saucony is Collective’s largest international label. Gregg Ribatt, president and CEO of Collective’s Performance & Lifestyle Group, said Saucony’s sales increased for the 16th consecutive quarter in the fourth quarter ended Jan. 28, 2012, thanks to the brand’s success in international markets in the minimalist and lightweight category.

“Performance product was particularly strong in the run specialty channel. We leveraged our insights in the minimalism and lightweight categories to create new technologies and apply them to some of our franchise models,” Ribatt told analysts on the most recent earnings call.

Retailers agreed Saucony would complement Wolverine’s portfolio, but noted there are synergies with other brands, too. They also said Wolverine would most likely not want to operate the Payless stores.

“Wolverine would pick up a nice portfolio of solid brands,” said Danny Wasserman, president of Tip Top Shoes. “With Merrell and Hush Puppies children’s shoes, there could be synergy with Stride Rite. You’re not going to get all the cream, though. They could maybe sell off Keds or push it downstream into a big Walmart. The only duplication I see is with Sperry and Sebago.”

Wasserman added, “[Wolverine] has a very solid international business with Hush Puppies and Merrell. Perhaps that could give them an entry into making Sperry and Saucony international businesses.”

Brian Trask, footwear category manager for Boston-based City Sports, said, “The other brands fit nicely [into their existing portfolio]. This might round out their assortment.” And the deal could even service specialty running. “You’ll have to wait and see. If something’s not broke [like Saucony], you don’t want to try and fix it.”

Tarek Hassan, co-owner of The Tannery, noted, “Both [companies] are different businesses, but they complement each other. They’re going to be a powerhouse. It’s like putting GE and General Motors under one roof.”

However, when it comes to the Payless division, Hassan quipped, “I don’t think either one of them knows how to run this business.”

It is widely believed Golden Gate, which has invested in retailers including Express, Pacific Sunwear, Eddie Bauer and J. Jill, as well as the Rocket Dog footwear brand, will operate the Payless stores, with a focus on turning around the domestic business, which saw sales fall 2.1 percent in the fourth quarter.

“Golden Gate is a great private-equity firm,” said Jack Hendler, president of advisory firm Net Worth Solutions Inc., which is not affiliated with this deal. “They look for value [in the form of] companies that have very strong growth opportunities. The fact that they’re in the retail space [makes for] some good strategic savings.”

Topeka, Kan.-based Collective has been shopping for prospective buyers since August, when it announced it would review strategic alternatives and shut 475 Payless stores in the next three years. For the year ended Jan. 28, the firm lost $160.2 million, compared with a $112.8 million profit a year earlier.

Media reports surfaced early Monday that the Wolverine-Golden Gate offer would value Collective at $21 to $22 a share, making the Collective deal worth between $1.27 billion and $1.33 billion. It would be the second-largest footwear acquisition in the past 12 months, after VF Corp. bought The Timberland Co. for $2 billion last June.

Wolverine’s cash balance increased to $123.3 million as of March 2012, from $91.6 million a year earlier.

Golden Gate has $12 billion in capital under management and is known to generally use little leverage in its transactions. It most recently completed the merger and recapitalization of Infor and Lawson Software with Summit Partners earlier this month.

Both Wolverine and Golden Gate did not return calls for comment. When contacted, former Collective Brands CEO Matthew Rubel declined to comment.

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