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Paul Altman, vice president of The Sage Group, a Los Angeles-based investment banking firm, thought VF made a smart move to acquire Chu’s 50 percent share of the royalty fees. “This has significant implications for VF; Nautica has overwhelmingly demonstrated the appeal of the Nautica brand across multiple products, and VF will now benefit free and clear from any current and future licensing endeavors.
“VF gets a large amount of top-line business, but hopes to improve the profitability of Nautica in the next few years which will boost its own bottom line, and hopefully the returns of its stockholders,” said Altman.
As for whether VF paid a fair price, Altman noted, that even though some stockholders may have been frustrated with Nautica’s recent performance, Nautica's shareholders should be happy with this outcome. “If you compare the price offered to Nautica’s price at Thursday’s close, VF paid a market-level premium of 29 percent. But the shareholders have benefited more than this. If you look further back in time, to June 10, when an investor group began urging Nautica to explore a sale, the premium is very significant. On that date, Nautica traded at $10.77, implying a near 60 percent premium for this transaction over the last month.This is a dramatic and meaningful result of shareholder activism at work.”
He said to calculate the total purchase price for valuation purposes one should adjust the $586 million in equity value by the $70 million in net cash Nautica has on its books, so that the net financial cost to VF is approximately $518 million.
With a total enterprise value, VF is paying 6.6 times Nautica’s EBITDA (earnings before interest taxes, depreciation and amortization) for the last 12 months to March 31, 2003, adjusting for cash on hand.
“This is a reasonable and fair multiple, albeit slightly below the average of recent transactions. While a significantly higher EBITDA multiple was recently paid in the Phillips Van Heusen-Calvin Klein deal, most recent transactions have been completed at similar or lower EBITDA multiples to this transaction,” said Altman. In addition, he noted, “An all-cash deal such as this is generally preferred in this market environment, providing Nautica’s shareholders with ultimate flexibility despite certain tax consequences.”