After many months of speculation, K-Swiss said this week that E-Land, the South Korean fashion and retail giant, had agreed to buy the ailing Californian sports apparel and footwear company at a price of $4.75 per share in cash, which values the K-Swiss group at about $170 million.
This amounts to a premium of 49 percent on the closing price of $3.19 for K-Swiss shares on Nasdaq on Wednesday, the day before the deal became public. The deal with E-Land, which was approved by all of the board members of the family-run business, is meant to close in the second quarter.
K-Swiss has been in dire straits in the last few years, as it struggled to make up for the sales decline of its predominantly white sneaker range. The company sought to compensate for this by expanding its performance range: While it remained strong in tennis footwear, it moved into triathlon and running, among others. Then the company's managers pinned their hopes on Clean Classics, a range launched this year to give fresh impetus to its lifestyle business.
Still, the company's sales were nearly halved from $508.6 million in 2005 to $268.4 million in 2011, and they were down again at double-digit rates for the first three quarters of last year, chiefly due to sagging U.S. sales. Losses added up to about $165 million in the three years from 2009 to 2011, leading to radical cost-cutting last year. The company's market capitalization plummeted, down by more than 90 percent since 2006.
Steven Nichols, the chairman of the company's board and its majority shareholder in terms of voting rights, said that the takeover by E-Land would provide the K-Swiss brand with the resources and scale to return to its former performance levels. He added that it could maximize the potential of Palladium, the French footwear brand acquired by K-Swiss about three years ago.
E-Land, which owns a raft of Korean and international fashion brands, is apparently interested in K-Swiss partly to build up its own business in the U.S. market. A spokesman was quoted as saying in The Korea Times that E-Land also intended to strengthen the K-Swiss brand with its infrastructure in Asia. E-Land is active in the sports market through its licensing deals in South Korea with brands from New Balance to Berghaus and Ellesse.
The Korean company will use existing resources to finance the prospective deal. The group appears to be on the acquisition trail: Just a few months ago, E-Land held talks for the potential takeover of Lafuma, the French outdoor and action sports company, which is changing hands now differently (see the related article in this issue). Over the last years the Korean group has invested in outlets, leisure holdings and upmarket brands such as Lario 1898 and Mandarina Duck.
The deal with K-Swiss requires regulatory approval as well as the go-ahead of interests representing 80 percent of K-Swiss' outstanding shares. However, K-Swiss pointed out that shareholders holding 75 percent of the shares had already committed to the agreement. This support probably comes from Nichols: The company's filings indicate that, through his Class B shares, he held nearly 70 percent of K-Swiss' voting rights at the end of 2011. Some more votes may have been committed by his son David, the company's vice president in charge of sales and marketing.
K-Swiss was famously launched in Van Nuys, California, in 1966 by two Swiss ski racers, Art and Ernie Brunner. They took an interest in tennis when they moved to the U.S. and came up with the first leather tennis shoe in the country, which became known as the Classic.
Two decades later, in 1986, the company was acquired by investors around Steven Nichols, then an executive at Stride Rite. K-Swiss rapidly expanded as Nichols built up the tennis range and introduced lifestyle products. The company went public in 1990. It enjoyed several halcyon years, which enabled the company to build up a considerable cash pile, until the downturn set in.
