Crocs' depressed share price jumped by more than 20 pecent after the announcement that an investment fund affiliated with Blackstone, one of the world's leading equity groups, has agreed to invest $200 million in the company by acquiring a new series of preferred shares that will represent about 13 percent of its equity upon conversion. The net proceeds of about $180 million will be reinvested by Crocs to help fund a new $350 million stock repurchase program that will reduce the number of shares publicly trading on the stock exchange by around 30 percent.
These initiatives will reduce the volatility in the price of the shares and in the company's base of shareholders, said Crocs, which also announced at the same time the retirement of John McCarvel as president, chief executive and board member of the company on or around next April 30. The board has launched an outside search for his replacement.
Thomas J. Smach, Crocs' chairman, gave credit to McCarvel for leading its financial turnaround since his appointment in 2010, with more than $1 billion in annual revenues from a diversified range of products and more than $300 million in net cash. The company employs 4,500 people and sells more than 55 million pairs of shoes per year in over 90 countries.
However, the company's profitability has deteriorated lately. Crocs is now expected to make higher losses in the fourth quarter of 2013 than in the corresponding period of 2012, and to book revenues at the low end of the previously estimated range of $220 million to $225 million.
An executive of Blackstone said Crocs will focus on improving its financial performance in the future, especially in the Americas and Japan, and on enhancing its global retail execution. However, it may moderate investment in new stores. Blackstone will have two seats on Crocs' board of directors.
The preferred stock issued to Blackstone will have a 6 percent cash dividend rate and be convertible into common shares at a unit price of $14.50, representing a 9 percent premium on the closing price on Dec. 27, or 10 percent higher than the average of the past 30 days of trading. The preferred shares will be converted into shares at any time after three years from now if the closing price of Crocs' shares exceeds $29.00 for 20 consecutive trading days. If they have not been converted, the preferred shares may be redeemed by Crocs at any time after eight years.