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PPR to buy Volcom for $607.5 million

The French luxury and retail group that is acquiring the Costa Mesa surf-and-skate brand already has some of the world's best-known labels, including Gucci, Yves Saint Laurent and Balenciaga.

May 03, 2011|By Andrea Chang, Los Angeles Times
  • Volcom, based in Costa Mesa, reported profit of $22.3 million and revenue of $323.2 million last year. Above, a stockholders meeting in 2006.
Volcom, based in Costa Mesa, reported profit of $22.3 million and revenue… (Ken Hively, Los Angeles…)

Volcom Inc., the Costa Mesa surf-and-skate brand, announced Monday that it had agreed to be sold to Paris-based PPR for $607.5 million.

The French luxury and retail group contains some of the world's best-known labels, including Gucci, Yves Saint Laurent, Balenciaga and Alexander McQueen. PPR's brands are distributed in more than 120 countries.

The cash deal, for $24.50 a share, was a 37% premium over the three-month average trading price of Volcom shares. The acquisition is expected to be completed during the third quarter, the companies said.

Richard Woolcott, Volcom's chief executive, called PPR the "perfect partner" to take the brand to the next level. Volcom designs and distributes surf, skate and snowboard clothing and related products for young men and women under the motto "youth against establishment."

"For more than 20 years we have worked to inspire a movement that provokes freedom of thought and expression," Woolcott said in a statement. PPR "could bring international market knowledge, sourcing capabilities and other operational expertise in areas such as product development and retailing to help the company grow Volcom globally, while preserving the elements that make the brands authentic."

Francois-Henri Pinault, chief executive of PPR, said in a statement that Volcom was "arguably one of the most desirable global action-sports brands."

"We admire Volcom's brand management capabilities and the unique voice in which it speaks to its customers," he said, adding that Volcom would complement and speed the development of the company's Puma sportswear brand. Puma, which PPR acquired in 2007, is focused more on sneakers and athletic wear.

Volcom reported profit of $22.3 million and revenue of $323.2 million in 2010; the company plans to release its first-quarter earnings Tuesday. On Monday, shares rose $4.67, or 24%, to $24.40.

Volcom's directors and officers have agreed to sell their 14.4% stake to PPR, the companies said.

Analysts said the $24.50-a-share offer was a fair price for Volcom considering the company's near-term outlook, especially in light of product cost inflationary pressures. They also said the deal would help the brand expand internationally.

Mitch Kummetz, senior research analyst at Robert W. Baird & Co., said Volcom was one of the strongest brands in the action-sports market and remained poised for growth in all of its major merchandise categories, with the biggest opportunities coming from its girls, boys, snow, swim and footwear lines.

"We believe the acquisition makes operational sense," he said in a note to investors. "PPR has the capital and resources to help the Volcom brand achieve its global potential."

But Kummetz warned that the company's performance was closely tied to the general health of the economy — the action-sports market was disproportionately hurt during the recession because its products tend to be pricier non-essentials — and noted that Volcom's largest customer, Anaheim-based Pacific Sunwear of California Inc., has been struggling in recent years.

The deal could be viewed as a slight to surfwear giant Quiksilver Inc. of Huntington Beach, which was previously rumored to be a PPR target, said Brian Sozzi, an equity research analyst at Wall Street Strategies.

"The fact it has went the direction of Volcom underscores [Quiksilver's] poorly situated balance sheet, among intangible factors," he wrote in a note to investors.

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