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Another Deal Cooking: VF Corp. Said in Talks For Nautica Acquisition

VF Corp. could be the next company to land a big designer name, as sources say it is involved in intense negotiations to acquire Nautica Enterprises.

“Any sale of the company has hidden costs. The employment agreements of chairman and ceo Harvey Sanders, vice chairman David Chu and John Varvatos ceo John Varvatos call for change-of-control payments totaling $9.3 million. In the event of a change of control and if Harvey Sanders is no longer employed by the company, the John Varvatos brand must be spun off or sold; or John Varvatos may elect to either be paid 10 percent of the brand’s net income as long as he is ceo, or to receive a lump sum payment of two times the brand’s net income for three years (not to exceed $50 million.) Any acquirer then likely surrenders a substantial portion of the economic value of the John Varvatos brand,” Genereux wrote.

In a Prudential Financial report by Lizabeth Dunn issued Monday, the investment firm downgraded Nautica to “sell” from “hold,” maintaining its $11 price target because of its belief that Nautica’s share valuation is extended.

“We think a sale is unlikely and believe Nautica shares are now fully reflecting an acquisition. Also, while management has strategies to turn the business around, we think progress will take time and without an acquisition, the shares are reflecting most of the upside for strategic initiatives. While we do believe management is doing its job and things should get better over time, the strategies for fixing the business are far from in the bag and we are hesitant to include much upside in our estimates,” she wrote.

As for VF’s financial health, this spring the corporation said it was affected by a tough retailing environment exacerbated by the Iraqi war, unseasonably cool weather and inventory reductions taken by VF’s retail customers. Discussing the downward revision in its second-quarter earnings expectations last week, Robert Shearer, VF’s chief financial officer, told analysts, “Our brand sell-throughs at retail are as strong as, if not stronger than, our competitors. Generally, we believe that we’re holding or gaining share in our key categories, jeanswear and intimates, as well as other areas of our business such as outdoors. So while in some cases our shipments to retailers are down, our sell-throughs at retail are positive. Again, this is the result of the aggressive inventory reduction actions taking place at retail.”
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