– US private equity fund to acquire up to 29 percent of stock
– Substantial reinforcement of equity base
– Capital increase and convertible bond issue planned
– External crises keep business performance below projections for first half of 2002/2003
The announced involvement of a financial investor as a shareholder will enable ESCADA AG to strengthen its capital base significantly and continue heightening its strategic focus on the ESCADA core brand. Today the luxury fashion house signed an agreement with US private equity company HMD Partners LP under which an HMD fund will invest EUR 45 million in ESCADA AG. The investment in ESCADA will proceed by way of several capital measures to be approved by an extraordinary shareholders' meeting on August 19, 2003. Furthermore, the investment is conditional upon the refinancing of the bank indebtedness of ESCADA AG. The result of these negotiations is expected to be announced shortly.
Once all transactions are complete, HMD will hold up to 29 percent of the increased capital stock. HMD has entered into a share lock-up agreement in which the shares may not be sold prior to 2006. Morgan Stanley acted as financial advisor to ESCADA AG in this transaction.
HMD Partners, headquartered in Palm Beach, Florida, is specialized in investments in medium-sized retail and consumer-goods companies. The company's funding is furnished by institutional and private investors, and by HMD founders and partners Abel G. Halpern, Federico Minoli and Peter H. Darrow.
Specifically, the agreements between HMD and ESCADA call for:
1. A cash capital increase with 1-for-1 preemptive rights for the existing shareholders will be proposed to the special shareholders' meeting. Thus up to 7.08 million new shares of common stock will be issued (equivalent to the 7.74 million shares currently in existence less the 0.66 million shares held by the company itself). ESCADA CEO Wolfgang Ley, who currently holds some 22 percent of the capital stock, will not exercise his preemptive rights.
HMD will acquire the portfolio of ESCADA AG treasury stock (amounting to 8.5 percent of the current capital stock), and additionally subscribe for enough new stock from the capital increase to give it a total stake of 29 percent of the increased capital stock.
2. Since the acquisition of the treasury stock and the new stock from the capital increase will presumably not be enough for HMD's planned total investment of EUR 45 million, ESCADA will also carry out a convertible bond issue for a total par value of up to EUR 50 million, likewise with preemptive rights for existing shareholders. For this purpose the special shareholders' meeting will be asked to conditionally authorize up to EUR 15.97 million in capital, entailing an entitlement to purchase up to 3.12 million shares of ESCADA stock.
For all transactions, treasury stock, capital increase and convertible bond, a price of EUR 10 per share has been agreed upon with HMD. This price implies a premium of approximately 40 percent vis a vis the price of ESCADA stock from the past three months.
Wolfgang Ley, CEO of ESCADA AG: ''We intentionally took our time finding a financial investor, so we could arrive at a good solution. HMD believes in the ESCADA Group's strategic orientation and the great potential of our core brand. We now have the chance to enhance this potential with a stable group of shareholders, and to evolve the ESCADA Group further with an orientation to profits.''
ESCADA CFO Dr. Georg Kellinghusen: ''The agreements with HMD allow us to strengthen our capital base significantly, and to increase our equity ratio to our planned level of 20 to 25 percent. The cash inflow from the Fund's investment gives us an important base to ensure the retirement of the EUR 100 million capital-market bond that falls due next year. Our financial investor gives us new freedom to act, so that we will defer our plans for divesting noncore operations until the market environment offers acceptable solutions for a sale''.