Polo Ralph Lauren Corporation (NYSE:RL) today announced that it has signed a definitive agreement to purchase certain assets of RL Childrenswear Company LLC, its licensee for childrenswear in the United States, Canada and Mexico.
“Over the past few years, we have taken strategic steps to establish more direct control over our valuable brand on a worldwide basis. From our geographic acquisitions of our European operations and our majority interest in our Japanese business, to our assuming operational responsibility of our Lauren brand, we have been able to build our brand on a consistent global view. We are now adding another important business that we believe we can continue to expand. Since launching Polo for boys 25 years ago, we've developed a substantial global business extending beyond boys to include newborns, infants, toddlers and girls,” said Ralph Lauren, Chairman and Chief Executive Officer. “We believe we can continue to build our brand by introducing additional product categories, expanding this business through our Ralph Lauren retail stores, and building a larger global business.”
“Our relationship with our licensee has been a mutually rewarding one over the years and together we have built a sizeable childrenswear business in North America,'' said Roger Farah, President and Chief Operating Officer. ''This transaction positions us to take advantage of very favorable demographics that support growth in children's apparel and other related product categories. Direct ownership allows us to further develop the brand and leverage our operational expertise to optimize the financial contribution to our Company.”
The purchase is a cash transaction for approximately $230 million, subject to final closing adjustments, with contingent and deferred payments, not to exceed $20 million, over the next three years. The transaction is expected to close in June 2004. Consummation of the transaction is subject to review under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.
The transaction is expected to be neutral to Polo Ralph Lauren's earnings in Fiscal 2005, after taking into account the elimination of licensing royalties from the children's business upon closure of the transaction. The Company expects wholesale revenues in the first full year of operation in Fiscal 2006 to be more than $200 million with earnings per share in the range of $0.15 to $0.20.
RL Childrenswear Company LLC, or its affiliated company, S. Schwab Company, Incorporated, has been a Polo Ralph Lauren licensee since 1993, holding exclusive licenses to design, manufacture, merchandise and sell newborn, infant, toddler, and girls and boys clothing in the United States, Canada and Mexico. The current license agreement will terminate in 2013. S. Schwab Company, Incorporated, also designs, manufactures and distributes infants' and children's apparel under the Little Me and Little Tikes brands.
UBS Investment Bank acted as the exclusive financial advisor to Polo Ralph Lauren with respect to this transaction.