In $225 Million Sale, Fifth & Pacific Sheds Lucky Brand to Focus on Kate Spade

After shedding Juicy Couture's intellectual assets earlier this year, Fifth & Pacific Companies, Inc. confirmed plans to sell Lucky Brand Jeans for $225 million to focus exclusively on Kate Spade and fully maximize the brand's potential.

The company reports that $140 million of the sale price will be paid in cash at closing and the remaining $85 million to be financed in the form of a three-year seller note.

Under Leonard Green & Partners, L.P.'s new ownership, Lucky Brand Jeans will also assume the proportionate share of FNP's sourcing contract with Li & Fung in addition to other FNP obligations. This $225 million purchase price reflects a multiple of more than seven times the brand's latest 12 months pro forma adjusted standalone EBITDA (inclusive of corporate costs estimated to run the business on a standalone basis). Consummation of this transaction is subject to customary closing conditions and is expected to occur in the first quarter of 2014.

In the third quarter, Lucky Brand posted $120 million in net sales, up from $112 million in the same period a year prior and driven by growth in the wholesale and international segments. The company migrated the brand to a new e-commerce platform during the quarter, with the expected business disruption early in the quarter than resolved heading into Q4.

William L. McComb, CEO of Fifth & Pacific Companies, Inc., said, "It is truly an historic day at Fifth & Pacific Companies - a return to our roots as a mono-brand company. Just as I indicated back on Oct. 7 when we announced the Juicy Couture deal with Authentic Brands Group, the decision to sell Lucky Brand Jeans is the result of a process we began last year - studying our resource allocation needs, our capital structure, and the operating risks and opportunities associated with a multi-brand portfolio.

"Simply put, it is the outcome of our work to identify the best way to unlock shareholder value," he continued. "Taken together, the deals we have announced recently related to our divestitures of Juicy Couture and Lucky Brand Jeans result in estimated net proceeds of $370 million to $380 million, which includes the face value of the seller note in today's transaction.

"The aggregate net proceeds for the two transactions reflect estimated cash restructuring and other transition costs and charges associated with the assignment or termination of leases, severance and other associated operating company transition activities, including estimated costs and charges previously disclosed at the time that the Juicy Couture deal closed," noted McComb.

"We believe that by focusing all of our resources on the huge opportunity at Kate Spade, we can deliver the strongest value creation opportunity for our shareholders," McComb added. "This is all about bringing Kate Spade to its full potential. The opportunity we have today is not unlike the opportunity that launched our corporation back in 1976: Kate Spade is a rapidly growing brand, with global appeal and strong margins, offering consumers something more than any of its competitors.

"We are proud of the transformation our company has undergone: today we are a leader in digital sales and marketing; we are primarily direct-to-consumer in our channel approach; we are global in reach and focus; and we are more marketing driven than we have ever been as a company," McComb explained. "But most importantly, we are focused, and with each passing phase of our transformation, we have become more and more focused on realizing this value creation opportunity."

At closing, Fifth & Pacific Companies will enter into a Transition Services Agreement (TSA) with Lucky Brand Jeans in order to support the transferred business while the new owner creates a standalone infrastructure.  The TSA is expected to span up to 24 months. The administrative office will continue to operate in North Bergen, N.J., where the majority of employees will continue employment with either Kate Spade or Lucky Brand Jeans.

Centerview Partners and Perella Weinberg Partners advised Fifth & Pacific Companies, Inc. on this transaction. Paul, Weiss, Rifkind, Wharton & Garrison LLP was FNP's legal advisor.  Latham & Watkins LLP was LGP's legal advisor.
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