Price may not be right for potential Timberland sale

Executives of The Timberland Company are exploring the possibility of selling the business, according to yesterday’s Wall Street Journal, which cited as sources “people familiar with the matter.”

The company, valued at $2 billion, has reportedly hired Goldman Sachs to oversee the process.

Sale of the Stratham-based footwear and apparel firm would have to be approved by the Swartz family, which owns all Class B Shares and maintains 70 percent voting power.

A spokeswoman for The Timberland Company was unavailable for comment.

According to Prudential Equity Group analyst Lizabeth Dunn, who last month downgraded Timberland shares from “neutral” to “underweight,” talk has been emerging lately about the possible sale of Timberland.

“The potential for a sale has been swirling around for about two weeks by our estimation,” Dunn wrote in a report — titled “Why We Don’t Think
A Deal Works” — that was released shortly after the Journal article appeared.

Dunn went on to say that speculation about a pending sale may have been the reason the firm didn’t “get punished on a very weak earnings report” for the third quarter.

Timberland last month reported a 25 percent decline in third-quarter profits, citing low sales of boots and children’s shoes. The company further noted the expected continuation of a flat U.S. market and said anti-dumping duties overseas would contribute to a 30 percent decline in full-year earnings per share.

Revenue growth in the mid-single digits was expected for the fourth quarter, the company said.

Although Timberland shares are currently trading near $33 – its stock price closed at $33.33, up $2.33 cents, Dunn argued that a leveraged buyout should yield a net price of between $25 and $28 per share, making its purchase less than optimal.

“If an LBO occurred near the current price, the internal rate of return does not look acceptable to us,” Dunn said.

If the sale of Timberland comes to fruition, the company would join a growing list of private-equity transactions in the apparel industry, which includes recent sales of Tommy Hilfiger, J.Jill and Eddie Bauer, the outdoor-clothing retailer which agreed yesterday to be acquired by two buyout firms for $286 million.

Although the Timberland name goes back only 33 years, it’s history reaches to 1918. when Timberland founder Nathan Swartz began working as an apprentice stitcher at a small shoe shop in Boston. By the mid 1950s he had purchased the Abington Shoe Company and brought his sons into the business.

It wasn’t until the mid-1960s, however, that Swartz began manufacturing the company’s original waterproof boot using new injection-molding technology.

That signature boot led to naming the firm The Timberland Company in 1973 and sparked a growing product line, which now includes a wide assortment of outdoor footwear, apparel and equipment.

Besides its footwear and apparel, Timberland has become known worldwide as a socially responsible corporation, promoting is involvement in communities and its relationship with employees. – TRACIE STONE/NEW HAMPSHIRE BUSINESS REVIEW

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