VF-Timberland Deal a Win-Win

Analysts are hailing the latest shoe-world mega deal as a win-win, but retailers are mixed on what new management means for vendor relationships going forward.
Kate McShane, analyst at Citi Investment Research, said VF Corp.’s acquisition of The Timberland Co. on Monday, while larger than expected at $2 billion, is consistent with the former company’s focus on the outdoor and action-sports category.
“Timberland is one of the premier outdoor brands in that space. VF has admitted they’ve looked at Timberland as a possible acquisition target for at least 10 years,” McShane said. “[But now] they have a much more developed brand, a much more established retail business and good opportunities in Asia. VF seems very excited on growing Earthkeepers and Mountain Athletics, and obviously overall business in China.”
“This is a fantastic deal strategically and valuation wise for VF Corp.,” Brian Sozzi, an analyst at Wall Street Strategies, wrote in a research note, adding there are opportunities to better position the Timberland brand as a lifestyle brand given VF’s expertise in apparel and accessories.

Mitch Kummetz, analyst at R.W. Baird & Co., agreed it was a favorable deal, as “VF’s contemporary coalition remains a fairly small business, and we believe that the Outdoor and Action Sports [division] still has substantial growth ahead of it.”
Investors also cheered the move, as VF’s shares shot up 12 percent in morning trading on Monday, to $103.30.
Timberland now joins The North Face and Vans in VF’s Outdoor and Action Sports segment after being acquired for $43 a share.
Eric Wiseman, VF’s chairman, president and CEO, called the deal a transformative acquisition and told analysts in a conference call Monday that “VF’s roughly $8.4 billion in revenues and Timberland’s $1.6 billion will result in a powerful and global $10 billion company.”
“In March, [we had said] our goal [was] to build our Outdoor and Action Sports business to 50 percent of total revenues by 2015. The acquisition of Timberland will fulfill that goal in our first year as a combined company. Timberland and SmartWool [are] brands [that] have clearly demonstrated momentum and considerable opportunities for growth,” Wiseman added.
VF expects the deal to be accretive to earnings per share, by 25 cents in 2011 and by 75 cents in 2012, and to create cost synergies of about $35 million annually.
According to Jeffrey Swartz, Timberland’s president and CEO, more than half of the company’s revenue comes from outside the U.S., which is where VF wants to take its group sales.
“The Timberland brand has a good foothold in China and is about half the size of The North Face business there. We look forward to leveraging our big Asia platform to continue to advantage strong growth there,” said Karl Heinz Salzburger, president of VF International. “The combination of VF and Timberland will increase VF’s international revenues to 35 percent of total revenues, accelerating our progress toward achieving 40 percent from international revenues by 2015.”
VF also estimated that by growing the international business and women’s footwear, Timberland’s sales could advance about 10 percent a year.
“VF got a good deal,” said David Zaken, owner of the New York-based David Z chain. “They got a world-renowned brand with huge potential for development [and that makes] amazing product in brown [shoes], cold-weather and waterproof. [Timberland] will give VF even a better platform and opportunities for the future to develop and take the best of every company and develop new things that I am excited to see.”
But not everyone was as enthusiastic. Sheikh Ellahi, owner of the 112-store Sheikh Shoes chain, said it could be tough to replace the personal relationship he has with Timberland’s management.
“VF is a good company, but they might take it more commercial. VF might look at the business a little bit shorter-term than Timberland was, [which] might be good for the shareholders, but not always great for the longer term,” he said.

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