Sharechat Logo

Kathmandu to buy Rip Curl for $368m to create billion dollar retailer

Tuesday 1st October 2019

Text too small?

Kathmandu Holdings will pay about $368 million to buy surf brand Rip Curl to create a billion-dollar revenue retailer, which it says will add at least 10 percent to earnings per share. 

The outdoor equipment chain has entered a binding agreement to buy the 50-year-old Australian company, which generated a profit of $27.2 million on revenue of $477.4 million in the June 2019 year.

Kathmandu will raise $145 million in a one-for-four pro rata accelerated entitlement offer to help pay for the acquisition, selling shares at $2.55 apiece. That's a 16 percent discount to the yesterday's closing price at $3.05, which aren't carrying rights to next week's dividend payment. It will issue $32 million of stock to Rip Curl's chief executive and founders and take on $231 million of new debt to fund the balance. 

"The acquisition of Rip Curl transforms Kathmandu into a $1 billion outdoor and action sports company, anchored by two iconic global Australasian brands," Kathmandu chief executive Xavier Simonet said in a statement.

"The combination of Kathmandu, Oboz and Rip Curl achieves diversification in product, channel, geography and seasonality, and creates a platform for the acceleration of our brands’ global expansion into new channels and markets."

Trading in the shares was halted for an institutional bookbuild. Jarden Securities and Credit Suisse Australia are joint lead managers and book-runners of the entitlement offer, which is underwritten by Jarden Partners, Credit Suisse and Deutsche Craigs. 

The acquisition needs shareholder approval at a special meeting to be held in Sydney on Oct. 18. All Kathmandu directors intend to vote in favour of the resolution. 

Last month, Kathmandu shares were trading at an 11-month high after the retailer reported earnings at the top end of guidance. 

Kathmandu said the combined entity, after adjusting for the deal, would have generated a profit of $81.1 million in the 2019 year on revenue of $1.02 billion. Earnings before interest and tax of $123.2 million would have been at a margin of 12 percent. The group's net debt would be $228.8 million at a gearing ratio 27.4 percent. 

The listed retailer expects the Rip Curl acquisition will help lift per share earnings by at least 10 percent in the 2020 financial year before any duplicated costs can be stripped out. That implies the company will deliver earnings per share of at least 28.05 cents near year. 

Rip Curl is owned by 22 shareholders, including three who are associated with the founders, who control 85 percent of the stock and have committed to not competing with the new entity for five years. 

If the deal falls through because any of Kathmandu's directors don't recommend the acquisition or if the underwriters or lenders pull their support, Kathmandu will owe a A$2 million break fee to Rip Curl. 

Kathmandu played down the risk of failing to integrate the businesses, saying both brands will retain their individual branding and cultural values, with the respective businesses run as separate entities under the group umbrella. 

(BusinessDesk)



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Rip Curl purchase a done deal on Kathmandu proxies alone
Comvita chair Neil Craig eyes the exit once he finds a new CEO
Mercury raises guidance on increased storage, high spot prices
Eroad reports strong 3Q sales growth, eyes ASX listing
MediaWorks puts TV business on the block
NZ dollar benefits as preliminary Brexit deal improves risk appetite
ANALYSIS: Why banks don't pass on full OCR cuts
NZ Europeans make up 80% of business leaders, survey shows
Zespri tries to whet American appetite for kiwifruit
MARKET CLOSE: NZ shares fall as Pushpay follows Aussie software firms lower

IRG See IRG research reports