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Jeans Giant VF to Buy Outdoor Gear Maker

Acquisitions: As sales lag, firm seeks to widen niche lines with $25.4-million purchase of struggling North Face.

April 08, 2000|JAMES F. PELTZ | TIMES STAFF WRITER

VF Corp., taking another step to widen its niche apparel lines while its big jeans business recovers, agreed Friday to buy struggling sportswear and outdoor equipment maker the North Face Inc. for $25.4 million in cash.

The announcement came only two days after loss-ridden North Face, a San Leandro, Calif.-based concern that was founded in 1966, said it might have to seek protection from creditors via a bankruptcy reorganization.

VF, the nation's largest publicly held clothing maker and based in Greensboro, N.C., has struggled itself over the last year in large part because sales of its low- to mid-priced Lee brand of denim jeans and its European jeans lines have languished. VF also sells jeans under the Wrangler, Riders, Rustler and Brittania labels.

So the North Face deal is the latest in a spree of small acquisitions that VF has made recently to bolster its position in specialty markets--what VF likes to call "lifestyle brands" of apparel and related accessories--while it tries to rekindle its ailing jeans divisions.

Earlier this week, for instance, VF signed a deal with Chic by H.I.S. Inc. in New York whereby VF acquired the global rights to the Chic brand of women's jeans and the non-European rights to the H.I.S. brand of jeans and casual pants for men and women. Terms of the deal were not disclosed.

And last month, VF bought the Eastpak brand of backpacks, book bags and other school accessories from Sunbeam Corp., also for undisclosed terms. Eastpak will be rolled into VF's JanSport division, which also makes backpacks along with outdoor equipment, luggage and apparel.

VF's other existing lines include Bestform and Vanity Fair intimate apparel, Jantzen swimwear, and lines of uniform and utility "work gear" clothing.

So far, though, VF's recent acquisition spree hasn't lit a fire under Wall Street. VF's stock has plunged 50% over the last year, and 20% of that decline came in the last five months. The stock slipped another 94 cents a share Friday, to $24.13, in New York Stock Exchange composite trading. North Face's stock, meantime, jumped 72 cents to $1.94 a share on Nasdaq in response to the VF pact.

VF sought North Face to add "a global dimension to its growing portfolio of strong outdoor-lifestyle brands," VF Chairman Mackey McDonald said in a statement. He also vowed that VF would "uphold the North Face's tradition of providing innovative, highly technical products to an intensely loyal consumer base."

He also said North Face's chief executive, Geoffrey Lurie, would keep that post after the purchase is completed.

"This looks like a very reasonable price for a very strong brand," said Leslie McCall, an analyst at the investment firm Brown Bros. Harriman in New York. "VF brings deeper pockets to the table, and North Face rounds out the high end of their [outdoor-equipment) portfolio."

North Face was started by two hiking enthusiasts as a small, mountaineering retail store in San Francisco's North Beach district. But the name was mainly chosen because, in the Northern Hemisphere, the north face of a mountain is generally the coldest, iciest and hardest to climb, according to the company.

North Face today makes a wide variety of pricey outdoor gear, including sleeping bags, mountaineering packs, tents, ski wear and other outerwear. The company's line includes $600 tents and $500 raincoats.

But the company has been plagued by financial problems and management turmoil. A year ago, North Face had to restate its financial results for 1997 and 1998 after auditors questioned the way it recorded several transactions.

That sparked a sharp drop in its stock price, prompted a rash of shareholder lawsuits and tripped up North Face plans to be acquired by a group that included an investment firm and its then-chief executive, Jim Fifield, who quit last September.

VF is acquiring North Face at a substantial discount to North Face's sales, which total about $240 million a year, because of North Face's widening losses and its struggle to keep paying its debts.

North Face said last month that it expects to post a pretax loss of about $75 million for 1999, versus a pretax profit of $5.8 million the prior year. And the company said earlier this week that while it was trying to revise its bank credit, it might be unable to continue as "a going concern" and might have to seek a reorganization under the U.S. bankruptcy laws.

It avoids that fate with VF, which also had a disappointing 1999. During the year, the company's profit fell 6% from the prior year, to $366.2 million, on essentially flat sales of $5.6 billion.

Bloomberg News was used in compiling this report.

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