Brown Shoe’s Shares in Spotlight: Acquisition Ahead?

Following a rough Friday on Wall Street, shares of Brown Shoe Co. rebounded Monday after several analysts issued new commentary on the company.

Brown’s stock was up about 5 percent after Morgan Stanley upgraded the company and Jeffries initiated coverage.

Sam Poser, an analyst at Sterne Agee, also issued a note this morning speculating that Brown’s amended credit agreement could indicate that an acquisition is in the works. As reported here last week, the company is said to be pursuing Stuart Weitzman. Coach and Advent International, a private equity firm, are also interested in buying the brand, according to sources, and all three have made it to the final round of bidding.

Brown’s amended credit agreement increases its borrowing capacity to $600 million from $500 million and also allows the company to request an increase in the size of the facility to $750 million. “The [credit] revolver is currently untapped and management will not use the maximum amount at once,” wrote Poser in the note. “According to management, the revolver provides dry powder for flexibility in the case of strategic M&A. The amendment indicates that BWS either has an acquisition in the works or is seriously pursuing one,” he continued.

Interestingly, financial sources have pegged the value of a Weitzman deal between $600 million to $800 million.

Last week, Brown sold its Shoes.com online business to focus on omnichannel initiatives at its best-performing divisions, namely Famous Footwear. Brown’s CEO Diane Sullivan is also continuing to ramp up the firm’s wholesale business through the expansion of Sam Edelman and newer licensed brands such as Vince.

A Weitzman deal would give the firm a strong foothold in the accessible luxury business, an attractive and fast-growing area of the footwear market.

Brown shares closed down about 8 percent on Friday, ending the day at $28.79. By 1 p.m. on Monday, they had hit $30.26 and closed the day at $30.24.

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