The VF Corporation agreed on Monday to buy the Timberland Company, the boot maker, for about $2 billion in cash, paying a big premium in an effort to bolster its outdoor clothing offerings.
VF, which already owns lines like Wrangler and 7 for All Mankind, will add Timberland to a stable of outdoor brands like the North Face and Eastpak.
The outdoor and action sports business reported a 14 percent gain in revenue last year, to $3.2 billion.Eric C. Wiseman, VF’s chairman and chief executive, described the Timberland deal on Monday as a “transformative” acquisition that will add footwear to his company’s fastest-growing unit.
“We are confident in our ability to take big brands and make them bigger,” he said during an investor conference call.
Still, VF is paying up: Under the terms of the deal, it will pay $43 a share, a more than 40 percent premium to Timberland’s Friday closing price.
Founded in Abington, Mass., in 1952 by the Swartz family, Timberland became synonymous with American work garments and outdoor clothing, particularly with its hard-wearing boots. But the company has faced rising materials costs, with its operating margins falling to just 9 percent last year. It reported a 30 percent drop in first-quarter profits this year.
On an investor call with analysts, VF’s chief financial officer, Bob Shearer, said his company planned to raise its new acquisition’s operating margin to 15 percent, in line with the rest of the conglomerate’s brands.VF executives appeared confident that it could wring profits by improving Timberland’s business performance, primarily by folding it into the apparel giant’s global platform and cutting costs.
Though Timberland’s popularity in the United States surged years ago, the brand remains popular in high-growth markets like China. The company also has a foothold in Japan, where VF is still building out its presence.In Timberland, VF also sees an opportunity to expand its presence overseas.
VF executives expect to reap benefits from the Timberland deal soon after its closing, which is expected in the third quarter this year. Timberland is expected to begin adding to VF’s earnings by 45 cents a share this year and 90 cents next year, excluding acquisition costs.
VF plans to keep Timberland based in Stratham, N.H. Members of the Swartz family have agreed to support the deal.
The Timberland sale appeared to stoke hopes that other outdoor apparel makers could soon go on the block as well. Among the big gainers was Wolverine World Wide, another maker of rugged work boots, whose shares jumped about 5.1 percent to $39.08.
Columbia Sportswear, another purveyor of activewear, rose 1.7 percent to $59.43.
Shares of VF also rose, gaining 10 percent on Monday to $101.01. Usually, an acquirer’s shares fall after a deal is announced, as shareholders worry about the transaction being overpriced.
Shares in Timberland soared 44 percent to $43.20.
Analysts praised the deal, citing VF’s history of integrating brands into its business platform.
“We regard Timberland as a high-quality brand that has been operationally challenged for a number of years,” analysts at Sterne Agee wrote in a research note on Monday. “We believe that VF has exhibited a strong track record and the capabilities to rectify many of the historical problems.”