Offering $597 million in cash, Berkshire Hathaway purchased a battered but improving Russell Corporation. The investment company of Warren Buffet will assume $400 million in debt, putting the total value of the deal at about $1 billion. In 2005, Russell had $1.4 billion in turnover and earnings before interest, taxes, depreciation and amortization (EBITDA) of $136.7 million. The purchasers offered shareholders a 33 percent premium above the Russell’s closing share price in mid-April. There is $22 million termination fee if the deal falls through.
Russell’s core business has a valuation of $200 million on the U.S. stock market. The value reflects the slew of acquisitions that the company has made in recent years, including Brooks, Spalding, Huffy, Bike and AAI, all of which cost Russell $234 million.
Last year Russell’s sporting goods division’s sales rose by 20 percent to $699,708,000, mainly due to the acquisition of Brooks. Excluding Brooks, they dropped by $44.8 million. Much of the decline came from the Russell Athletic division, which recently lost its licenses in the USA with Major League Baseball (MLB) and with Discus Athletic for Wal-Mart.
Operating income decreased by 30 percent for the division to $41,184,000. The company continued to generate a lot of its turnover from its activewear business, with which it taps the mass market, and the segment’s sales rose by 2.3 percent to $674.2 million last year.
Berkshire Hathaway’s apparel/footwear sector last year saw its sales rise by 4 percent to $2,286 million, with earnings before tax growing by 7 percent to $348 million. The apparel segment, which includes Fruit of the Loom, made up a majority of sales with $1,754 million while the footwear sector, including H.H. Brown, accounted for the balance. H.H. Brown owns the Dexter and Born brands, in addition to marketing boots under the Brunswick, Acme, Browning and Beretta labels. The group also owns Justin Boots from Texas. A relationship of more than 20 years between Brooks and H.H. Brown began when H.H. Brown was a sourcing agent for Brooks. Even before, Browning was associated with Brooks in the brand’s distribution in Europe.
While planning to increase its capacity to service the U.S. mass market, Russell is trying to gain footing in new categories, one of them being shoes. The company said that the Brooks division has been working with Spalding to develop a basketball shoe that would likely be marketed under the Spalding name. Brooks is also working with the Russell Athletic division to develop other footwear that would be an answer to Under Armour’s new entries in this product segment. In a recent move, Brooks was made to assume the management of Russell’s Moving Comfort brand of bodywear, which has similar distribution in the running specialty channels.
Spalding is important for Russell, as it currently generates $400 million in global sales including licensees, half of which are made outside of the USA. The company will be using the brand as a catalyst for further growth. Spalding is attacking the Chinese market, where basketball is the second most popular sport. About 100 Spalding stores are in the country and the company plans to raise this number to 500.
