G-III plans to fund acquisition by taking on debt
NEW YORK, United States — LVMH agreed to sell Donna Karan International to G-III Apparel Group Ltd. for an enterprise value of $650 million, a rare disposal for the French luxury-goods maker, which failed to turn around a label that once defined workplace attire for successful U.S. women.
The sale reflects LVMH’s inability to generate profitable growth from the business, which has counted Hillary Clinton and Michelle Obama among its fans. Co-founder Donna Karan transformed professional women’s wardrobes in the 1980s and ’90s with her design philosophy of “seven easy pieces” that could be mixed and matched, but the spread of casual workplace dressing has proved a challenge.
“When G-III approached us about acquiring the brand, we concluded that the time was right,” Toni Belloni, managing director of LVMH, said in a statement Monday. G-III will gain the Donna Karan and DKNY brands, the companies said. The transaction makes it likely that LVMH announces plans to buy back 1 billion euros ($1.1 billion) of stock, wrote Fred Speirs, an analyst at UBS. LVMH is scheduled to report results Tuesday.
LVMH shelved the Donna Karan line after its founder departed last year, with plans to focus on the DKNY brand, the New York Post reported on July 20. It also said that the company had decided to sell both brands after seven months of “disappointing performance” under new designers Maxwell Osborne and Dao-Yi Chow.
“Selling DKNY is a way to get rid of a problem at a time when the market is tough,” wrote Luca Solca, an analyst at Exane BNP Paribas. “Getting rid of loss-making businesses is second best to turning them around, but better than keeping them in the group as a perpetual drag.”
Shares of the French company, whose full name is LVMH Moet Hennessy Louis Vuitton SE, rose 1 percent to 143.70 euros as of 11:43 a.m. in Paris.
Donna Karan founded the fashion label in 1984 with her late husband, Stephan Weiss. She stepped down as chief designer last year to focus on other projects such as Urban Zen. G-III makes dresses, suits and sportswear under brands such as Calvin Klein and Vince Camuto. The sale is “a good deal for LVMH, considering the brand has been under considerable pressure, not only in the U.S. but in Europe over the past 12 to 18 months,” said John Guy, an analyst at MainFirst Bank.
LVMH CEO Bernard Arnault’s mantra is there’s no such thing as a bad brand, just bad brand managers, according to the analyst. The few divestments LVMH has made in past years have been Ebel watches and Christian Lacroix fashion. LVMH also disposed of a minority stake in Hermes International SCA after the French rival dodged its hostile advances.
G-III said it expects the acquisition to weigh on profit in the fiscal year through January 2018, and boost earnings from then on. The New York-based company is taking on debt to fund the purchase. The companies said they expect to complete the transaction by early next year.
Barclays Plc advised G-III.