The footwear company just made a big deal.
Shares of Skechers (NYSE:SKX) were soaring Monday, up 25% after the footwear company announced that it was going private.
Specifically, the sneaker company, the third largest in the world, will be acquired by 3G capital, a private equity investor.
3G Capital agreed to pay $63.00 per share in cash for all outstanding shares of Skechers, representing a 30% premium to Skechers’ 15-day volume-weighted average stock price. That equates to a value of about $9.4 billion, making it one of the largest deals in the clothing, footwear, or soft lines industries in recent years.
Further, as part of the deal, existing shareholders have the option to instead receive $57.00 in cash and one unlisted, non-transferable equity LLC unit in a newly formed, privately held company. That company, following the closing of the transaction, will be the parent company of Skechers.
A maximum of 20% of the outstanding shares of Skechers common stock will be eligible to receive the mixed election consideration. No shares that are sold, transferred, assigned, or otherwise disposed of between the close of trading on May 2 and the closing of the transaction will be eligible to receive the Mixed Election Consideration.
Shares for which an election has not been made will be converted into the cash election consideration.
“With a proven track-record, Skechers is entering its next chapter in partnership with the global investment firm 3G Capital,” Robert Greenberg, chairman and CEO of Skechers, said. “Given their remarkable history of facilitating the success of some of the most iconic global consumer businesses, we believe this partnership will support our talented team as they execute their expertise to meet the needs of our consumers and customers while enabling the Company’s long-term growth.”
“Transformational opportunity”
Skechers officials call this move a transformational opportunity for company, which has been a steady long-term grower. Over the past 10 years, the company has posted average annual earnings growth of 13.6% per year.
The stock price has an average annualized return of 18.5% over the past five years and 7.1% over the past 10 years.
In the first quarter, Skechers reported a record revenue of $2.4 billion, a 7% year-over-year increase. Earnings were essentially flat at $1.34 per share. But the company pulled its guidance for the rest of the year “due to macroeconomic uncertainty stemming from global trade policies.”
According to Fashion Dive, between 40% and 45% of Skechers products are made in China, so it has significant exposure to tariffs.
Analysts at Evercore say the deal reflects 3Gs faith in the long-term profitability of the sector and sets a baseline valuation for other deals in the sector.
Management will remain in place
Skechers senior management team will remain in place, with Greenberg continuing as CEO. The company will remain headquartered in Manhattan Beach, Calif.
Further, there will be no change in strategy as it will continue to execute its ongoing initiatives. These initiatives include designing award-winning and innovative product, international development, direct-to-consumer expansion, domestic wholesale growth, and strategic investments in global distribution, infrastructure and technology.
“Skechers is an iconic, founder-led brand with a track record of creativity and innovation. We have immense admiration for the business that this team has built, and look forward to supporting the company’s next chapter,” Alex Behring, co-founder and co-managing partner, and Daniel Schwartz, co-managing partner, of 3G Capital, said. “Our team at 3G Capital is built to partner with companies like Skechers.”
The transaction was approved by the board, based on the recommendation of an independent committee of directors that evaluated the transaction. Skechers shareholders also approved the deal.
Upon completion of the transaction, Skechers will be a private company, and its stock will no longer trade on the New York Stock Exchange.
The stock price surge is likely related to investors buying up shares to reach the offer price of $63 per share and, ultimately, increase the value of the buyout. As of Monday after, Skechers share were trading at around $61.50 per share.
