VF to buy Timberland for $1.8bn

VF Corp, the world's largest apparel maker, has agreed to acquire Timberland for about $1.8 billion to accelerate global sales of outdoor gear.

The per-share price is $43, the companies said today in a statement. VF agreed to pay 9.5 times Timberland's earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That matches the median multiple in about nine footwear and apparel deals since 2006.

The purchase, the biggest in the footwear industry in at least five years, will allow the maker of North Face jackets to get more than half its sales from outdoor and sports clothing. VF will cut costs at Timberland and boost the brand's revenue by 10 per cent annually by expanding in Europe and China, executives told analysts on a conference call.

"It's a fantastic deal strategically and valuation-wise for VF Corp," Brian Sozzi, a retail analyst for Wall Street Strategies in New York, wrote today in a note to clients. The Timberland brand "has global awareness."

The acquisition price is 43 per cent more than Timberland's closing price June 10th. Last month, Timberland's shares fell the most in more than 23 years after increasing costs for labour, materials and transportation ate into profit.

"Timberland has been our number one acquisition priority," chief executive Eric Wiseman said on the call. "It knits together two powerful companies into a new global player in the outdoor and action sports space."

Over the past five years, the buyers of more than 40 footwear makers paid an average premium of about 21 per cent compared with the average price of 20 trading days before the deal's announcement, according to Bloomberg data. VF agreed to pay a 36 per cent premium on that basis.

The purchase, scheduled to close in the third quarter, has an enterprise value of about $2 billion net of cash acquired, the companies said. The acquisition will probably add about $700 million to VF's revenue in 2011, they said. Almost three-quarters of Timberland's $1.43 billion in sales last year came from footwear such as hiking boots, while the rest came from apparel, accessories and royalties.

The transaction also should add 25 cents a share to earnings in 2011, the companies said. Analysts on average projected earnings of $7.25 a share on sales of $8.5 billion for that period, according to a Bloomberg survey.

Bloomberg