Pondering Sycamore’s Plans for Jones

NEW YORK — While the ink is not yet dry on Sycamore Partners’ takeover of The Jones Group Inc., the private equity group already is plotting its returns.

With a special shareholder vote slated for next Monday to approve the bid, speculation is intensifying on what Jones’ new owners have in store. Sycamore, in conjunction with its takeover of the company, is preparing for the potential sale of some Jones brands by splitting up divisions and raising debt in the individual segments.

Nine West Holdings, which includes Nine West Co. and Jeanswear Co., will represent the surviving corporation after the completed buyout and subsequent breakouts of Kurt Geiger and Stuart Weitzman.

“I would expect [Sycamore] to look at the brand portfolio and assess which brands are core and which are non-core and make decisions accordingly, so they can decide whether to invest in the growth part of the portfolio or whether there might be other suitors better placed to grow the other brands,” said Canaccord Genuity analyst Camilo Lyon.

Sycamore already has taken steps to boost its potential returns from the Jones purchase by reducing the amount of its own funds invested in the takeover. The company recently cut its equity commitment by almost half, by adding $300 million in new, unsecured debt at Nine West Holdings, announced via filings last week with the Securities & Exchange Commission.

“They are being strategic by placing the debt at the brand level, so it gives them more options to sell off the individual [labels] or look at them independently, similar to the way Kellwood ended up splitting off Vince,” said Maria Watts, a director at Robert W. Baird & Co. “The [firm] is probably getting a lot of inbound interest from strategic acquirers.”

On Sycamore’s ability to reduce its equity commitment, one source close to the deal said, “With debt markets so hot at present, the issue of additional debt so soon after the transaction is almost becoming commonplace. Investors are desperate for yield, and the fact that Sycamore is adding debt signals a belief that the private equity firm will turn around the business, especially at Nine West, which is underperforming.”

Another market watcher added, “At present, the focus for Sycamore is dividing up the portfolio and dressing up the assets to optimize the debt levels. The real operational changes are yet to be announced. They may be as minor as a change to store numbers or a full change of strategy. Already, Sycamore will have consultants working around the clock to map out these changes.”

However, Sycamore could hit choppy waters as it prepares to launch a full-scale turnaround. One analyst noted, “It is no secret that disorganization often ensues when a company is up for sale and transitioning from one owner to another, and that can extend from the top to the bottom and every step of the way.” And in the case of Nine West, he added, the product design, merchandising, sourcing and day-to-day operations will need to be strengthened as the firm changes hands.

Elsewhere in the portfolio, a $255 million financing deal is in the works to fund Sycamore’s acquisition of Stuart Weitzman and subsequent carve-out of the brand, with Jefferies and MCS Capital Markets leading the transaction. The buyout financing package also includes roughly 100 million pounds (or about $166 million at current exchange) in undrawn credit facilities for the Kurt Geiger segment, which Sycamore can use to fund working capital needs.

As previously reported, in December, Jones Group announced a deal to be sold for $15 a share or a total of $1.2 billion. Ahead of the sale, Jones dropped the Rachel Roy designer collection and last week offloaded the intellectual property rights of Brian Atwood to Steven Madden Ltd.

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