Inside Wolverine’s Big Buy

It was Blum Capital, Collective Brands Inc.’s largest shareholder, that approached Wolverine World Wide Inc. early in the game to join the consortium that acquired the Topeka, Kan.-based firm for $2 billion, or $21.75 a share, on Tuesday, Footwear News has learned.

And for Blake Krueger, chairman and CEO of Wolverine, which bought Collective’s Performance & Lifestyle Group for $1.23 billion, “the results are just spectacular.”

“[The deal] came about last summer,” Krueger revealed to FN on Tuesday. “We were approached by Blum Capital and it looked like there might be an opportunity there. We were the most logical strategic [operator] in the industry to acquire PLG, and they were really interested in the Payless ShoeSource [business]. They teamed up quite early with Golden Gate, a private equity firm that has numerous investments in the retail category.

“It’s been a very lengthy process,” he continued. “Frankly, there was a lot of interest — not just in Payless, but in the PLG group and in the individual PLG brands. The board is focused on what’s best for shareholders. We’ve stayed in it with patience and persistence.”

Collective effectively put itself up for sale last summer when it announced it was pursuing strategic alternatives and closing about 475 underperforming stores over a three-year period in an effort to better position its Payless and Stride Rite stores.

Before Tuesday’s transaction, Blum Capital was one of Collective’s largest shareholders with a nearly 6 percent stake, according to a recent filing. Blum Capital and Golden Gate will own equal stakes in the operations of Payless and Collective’s international licensing arm, for which they paid approximately $770 million.

The total deal, expected to close in late July, is valued at about $2 billion when including the assumption of debt.

Wolverine holds $123.3 million in cash and is expected to finance the acquisition with about $1.28 billion worth of debt. The firm expects the deal to add between 25 cents and 40 cents to its fiscal 2013 earnings per share, and between 50 cents and 70 cents in fiscal 2014.

However, investors on Tuesday appeared mixed on the acquisition, as Wolverine’s shares slipped 1.6 percent at midday and Collective’s shares were trading under the deal’s value, at around $21.19 a share.

But a source close to Golden Gate told FN the acquisition was right in the private equity firm’s wheelhouse, as it is one of the most active specialty retail investors in the U.S. today. He also said Golden Gate fully supports the turnaround plan already in place for Payless Domestic, which was one of the key parts of the deal.

Blum Capital is also known in the industry to be a long-term investor. Doug Dossey, a managing partner there, said in a statement, “At closing, Payless will be well capitalized with a strong balance sheet and have the financial flexibility to take advantage of its numerous growth opportunities both domestically and overseas.”

Meanwhile, retailers cheered the buy and seemed particularly upbeat on how the acquired brands would complement the Wolverine portfolio.

Dave Levy, owner of Connecticut-based Hawley Lane Shoes, said, “I’m very pleased with the news, especially since I was preparing myself for the worst. I have a lot of dollars committed with [Collective’s] Sperry Top-Sider and Stride Rite brands, in particular. I can see a lot of great synergies between Stride Rite and Merrell. They really complement each other well.”

Jeffrey Espersen, GM for Zappos.com, said, “We’re excited for [the deal]. Wolverine can help with what they do best: They know how to [successfully] build brands. Collective’s brands are well run and they have a long track record of success. Wolverine can help Collective go to the next level from a product-resources [perspective].”

Daniel Kahalani, president of DNA Footwear in Brooklyn, N.Y., noted that Wolverine is a well-structured company with enough money behind it to ensure growth for the Merrell, Sebago and Hush Puppies brands “and take them into the future, too.”

He added, “They have a good sales team. I hope Wolverine doesn’t change anything structure-wise or fix what’s not broken. Design-wise, however, they could update [the Keds and Sperry styles] to be more current.”

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