Daddy Now Wears Hiking Boots

Blogging in the Los Angeles Times, David Lazarus puts it this way: "Timberland has a new daddy. The purveyor of outdoorsy shoes and duds is being acquired by VF Corp., whose brands include Wrangler denim and Nautica apparel, for about $2 billion." And it sounds like Big Daddy has Street cred, too: "VF Seen Smarter Than Buffett as Shares Surge on Timberland Deal," reads the hed over Tara Lachapelle's and Danielle Kucera's story in Bloomberg. (VF was up 10% to $101.01 yesterday.)

Why all the fuss over a boot maker?

Well, as the Bloomberg piece explains, VF CEO Eric Wiseman has returned more than twice as much to his investors than his biggest rivals since taking the top job three years ago, and this is the largest acquisition ever for the company, which also makes North Face jackets, Vans sneakers, Reef sandals, Eastpak backpacks and other apparel and accoutrements for the adventurous (and those who pretend to be).

Although analysts project that Timberland will have record sales this year and next, its shares dropped 26% on May 5 after it missed earnings estimates.

"It's hard not to like this deal," Wall Street Strategies retail analyst Brian Sozzi tell the Bloomberg reporters. "They got Timberland at a really good price because they bought it on that horrible earnings report. They're getting a company that's cut expenses dramatically over the past two years, and has real growth drivers within the brand portfolio, so sign me up."

Timberland's costs are higher than VF's, and profitability at North American stores can be improved, VF execs told analysts on a conference call. It plans to focus on Timberland's operating margin, which was "just 9% last year, well below VF's 20%," Elizabeth Holmes writes in the Wall Street Journal. The company is betting that it "will be able to use its size to squeeze more profits out of the boot maker even as materials costs rise."

But Greensboro, N.C.-based VF had better be careful about how it does it, warns one Massachusetts-based analyst who follows the company, which is based in Stratham, N.H.

"VF will say they love the quality of the Timberland brand and promise not to tinker with it," Michael Tesler, a partner at Norwell consulting firm Retail Concepts, tells the Boston Herald's Thomas Grillo. "But privately they may do a cheaper leather that will look the same and charge the same price, but it just won't last as long."

The company was founded in 1952 by Nathan Swartz, a shoe-stitcher by trade, who bought half-interest in the Abington Shoe Company of Abington, Mass. "Within three years, Nathan acquired the remaining interest in the company for $20,000 and brought his youngest son, 19-year-old Sidney, aboard. Within the year, Nathan's elder son, Herman, returned from a stint in the Navy and joined the business too," according to a history of the company on the Funding Universe site that amply details the ups and downs of the company through 2002.

The Swartz family still owns 74% of the company's voting power. It has agreed to support the sale, writes Michael J. de la Merced in the New York Times, and VF has agreed to keep the company based in New Hampshire. VF expects to "wring profits ... primarily by folding it into the apparel giant's global platform and cutting costs," de la Merced reports its CFO, Bob Shearer, told analysts.

Timberland is proud of its social and environmental bent, with campaigns such as the "Give Racism the Boot" campaign it launched in the United States and Europe in 1992. "No one preaches corporate responsibility quite like Timberland's Jeff Swartz, reads the lede to a Fast Company piece from 2008.

Swartz says the company is known for "protecting a brand's unique culture and DNA." Analyst Tessler hopes VF continues to let it do so. "When you have an iconic brand like Timberland, the parent company would be smart to leave it alone."

Timberlands's "Nature Needs Heroes" campaign, which launched last fall, showcases its Earthkeepers line, "using outdoor imagery and humor to help convey the serious message of environmental accountability -- the notion that even small acts of environmental action make a difference," as a company blog post puts it. It also has a "Virtual Forest" presence on Facebook and launched an iPhone app earlier this year that allows users to track the miles that they walk or cycle.

Timberland was first associated with hip-hop fashion in the mid-1980s. "Timberlands, to my knowledge, have rarely been subjected to negative criticism by rappers. The brand's acclaim is almost scarily universal," wrote one disapproving blogger in 2006 under the hed "Timberland is Dead." Indeed, the Fast Company profile says that "young hip-hoppers moved on, costing the company $150 million in annual sales, which Swartz says 'is not coming back.'"

But dead? Apparently not by a couple of million Benjamins or so.

Tags: apparel, m&a, retail
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