Liz Continues Multibrand Strategy with Acquisitions, Alliances

Bobbin, Oct, 1999 by Jules Abend

New Deals Include Kenneth Cole

In July, Liz Claiborne Inc. formed an alliance with and purchased a stake in Kenneth Cole Productions. The deal is a part of the organization's long-range strategy to be a multibrand company and follows on the heels of several other acquisitions this year, including its February purchase of 84.5 percent of Segrets Inc. and June acquisition of 85 percent of Lucky Brand Dungarees.

As a result of this latest deal, Liz Claiborne will launch Kenneth Cole brand contemporary women's sportswear for fall 2000. The initial offering will be followed by a new juniors' collection under the Kenneth Cole Unlisted brand in spring 2001, and the introduction of a women's "status" denim and sportswear line under the Reaction Kenneth Cole name for fall 2001. The goods are primarily for department store distribution.

Under the agreement, Claiborne has also agreed to purchase 1 million shares of Cole's 13.5 million outstanding shares of Class A stock for $29 a share. (The deal is expected to close in the third quarter.) On a diluted basis, the purchase represents 7.4 percent of the company's outstanding shares, 7.6 percent on an undiluted basis. However, Claiborne's voting stock will not be this high because Cole's president and CEO, Kenneth Cole, owns about 6 million Class B shares, which represent a substantial portion of the voting stock.

In addition, Claiborne repurchased 760,000 shares of its common stock as a "strategy of better utilizing [the company's] balance sheet to increase shareholder value," chairman and CEO Paul Charron said.

Evidently, Claiborne's long-term plans are working. Profits in the quarter ended July 3 were up 1.9 percent to $31.6 million, or 50 cents a share, from $31 million, or 47 cents a share. This beat Wall Street expectations of 48 cents for the second quarter of 1999. Moreover, sales in the quarter rose 7.5 percent to $607.7 million, up from $565.2 million, as a result of strong performance from the casual Liz Claiborne brands, DKNY Jeans, the new DKNY Activewear line, and Liz Claiborne's special markets group.