Liz Claiborne Strikes Joint Venture Deal for Mexx
Liz Claiborne, Inc. has agreed to sell its global Mexx business to a joint venture in exchange for 18.75 percent of the common equity of the joint venture and total cash consideration of $85 million, subject to working capital closing adjustments, which includes $60 million of ABL facility debt that is expected to be assumed by the joint venture and refinanced at closing.
The Gores Group will own an 81.25 percent majority interest in the joint venture and has also committed to supporting the business through its ongoing turnaround. The global Mexx business will continue to be led by Thomas Grote as Chief Executive Officer, while Lloyd Perlmutter will continue as Chief Executive Officer of Mexx Canada. The transaction is expected to close in the fourth quarter.
The Gores Group will own an 81.25 percent majority interest in the joint venture and has also committed to supporting the business through its ongoing turnaround. The global Mexx business will continue to be led by Thomas Grote as Chief Executive Officer, while Lloyd Perlmutter will continue as Chief Executive Officer of Mexx Canada. The transaction is expected to close in the fourth quarter.
The transaction is expected to:
- Strengthen Liz Claiborne's financial position;
- Enable the company to de-consolidate the losses from Mexx;
- Requires no further cash investment in Mexx by the company;
- Receives total cash consideration of $85 million, net of working capital closing adjustments, which further de-levers the company, contributing to its goal of reporting 2011 year end debt below that of 2010's year end debt of $578 million; and
- Retain an 18.75 percent interest in the joint venture which gives the company and its shareholders the ability to participate in the long-term growth potential of Mexx.
William L. McComb, chief executive officer of Liz Claiborne, Inc., says: "We've brought the Mexx European business to the early stages of a true turnaround. But there is more to be done, and in uncertain times and true market volatility, de-risking became essential… The Gores Group is an ideal partner for the Mexx business given its extensive experience in successful corporate carve-outs and growing presence in the apparel retail sector. With 2010 revenues of over $730 million, we believe the Mexx business will ultimately thrive under Thomas Grote's continued leadership as a private enterprise after the completion of this transaction."
McComb concludes: "We've made a lot of important changes in the past few years, primarily transitioning Liz Claiborne, Inc. to be a more brand-centric and retail-based company, and every decision we make is driven by how to do so as effectively, efficiently and dynamically as possible. At the close of this transaction, we will be a more capital efficient, growth-oriented company and will be able to fully turn our attention to building and growing our core portfolio of global lifestyle brands."
Thomas Grote, chief executive officer of Mexx, says: "Taking the Mexx business private is a logical and important step. We have identified a winning product and merchandising direction that re-activates the strong positive attributes of the Mexx brand, and we are gaining traction now. The new partnership between Gores and Liz Claiborne will give us the ability to fully carry out our work and maximize Mexx's full potential."
Alec Gores, founder and chairman of The Gores Group, says: "We are excited to partner with Liz Claiborne, Inc. and to back this management team to continue the turnaround efforts which are well underway. This transaction serves as a prime example of our ability to apply our extensive carve-out experience to the retail sector, and we see an excellent opportunity to create value and rebuild a great brand."