Hanes Acquiring Pacific Brands Of Australia

HanesBrands has “entered into a definitive agreement to acquire Pacific Brands Limited, the leading underwear and intimate apparel company in Australia.”

If the $800 million cash bid for the publicly traded firm is successful, the acquisition will mark “Hanes’ sixth in the past three years and would add Australia and New Zealand to the list of countries where the company holds the No. 1 or No. 2 market share position for underwear, intimate apparel or hosiery. The countries include the United States, Canada, Mexico, Brazil, France, Germany, Italy, Spain, and South Africa.”

While the purchase agreement has been unanimously approved by the boards of directors of both companies, Hanes noted the acquisition, which it hopes to close in the third quarter of this year, must still be approved by Pacific shareholders. It also could be contested by other potential acquirers.

Just last month Hanes entered into “a definitive purchase agreement to acquire Champion Europe, which owns the trademark for the Champion brand in Europe, the Middle East and Africa.” In 2013 it completed its acquisition of Maidenform, and executives have spoken frequently about doing deals in conference calls with analysts.

Hanes boasted that “Pacific Brands’ portfolio includes Bonds, Australia’s no. 1 men’s and women’s underwear basics brand and Berlei, the country’s leading premium bra brand.

In announcing the deal, Hanes projected “that under its ownership publicly traded Pacific Brands (ASX: PBG) would have calendar 2016 net sales in its core underwear and Sheridan businesses of approximately AUD800 million (US$600 million) and adjusted operating profit of AUD75 million (US$56 million). The Melbourne-based company, which has a June fiscal year end, sells primarily in Australia with some distribution in New Zealand, the United Kingdom and Asia.”

Hanes added that the “all-cash transaction is expected to be immediately accretive to adjusted earnings per share and deliver an after-tax internal rate of return in the mid-teens. It is projected to deliver full benefits within three years, attaining adjusted operating profit of approximately US$100 million, contributing approximately US$0.25 to Hanes’ adjusted EPS.”

Richard Noll, chairman and CEO at Hanes, declared “Pacific Brands is a natural addition to the HanesBrands portfolio with its strong market-leading brands that will be complemented by our global supply chain. In the span of 10 years, we have transformed the company through acquisitions and our Innovate-to-Elevate initiatives. We have tripled operating profits and expanded from a $4 billion company concentrated in the United States to a $7 billion global underwear and activewear powerhouse spanning the Americas, Europe and Asia-Pacific. This foundation will serve as a catalyst for even further growth and value creation for the foreseeable future.”

Hanes stated that it will keep only those parts of Pacific which fit. “Hanes intends to divest the Tontine pillow business and Dunlop Flooring business, which Hanes does not consider part of Pacific Brands’ core. Combined, they account for 12 percent of sales and operating profit (excluding corporate overhead allocation). Hanes is not including sales and profits for those businesses in its long-term projections.” Discussing Pacific, Hanes added, “Of the core business, underwear accounts for three-fourths of sales and includes underwear, bras, socks, hosiery, babywear and outerwear. The underwear group is successfully executing growth strategies to reshape its wholesale business, expand distribution, and increase retail and online sales. The group operates more than 150 company retail stores and retailer shop-in-shops.”

“Underwear has a three-year compound annual sales growth rate of 7 percent. The company’s biggest underwear brand is the fast-growing Bonds, an iconic century-old brand that holds the No. 1 market share for men’s underwear, women’s underwear, children’s underwear, babywear and socks, as well as the No. 3 position in bras. In addition, the Berlei brand of premium bras sold in department stores is No. 2 in overall bra market share and No.1 in sports bras.”

“Bonds sales have increased 40 percent since 2013. In the first half of fiscal 2016, retail sales at Bonds stores increased 39 percent, driven by store openings and 22 percent comparable-store sales growth.”

“The acquisition is expected to result in significant savings through the use of Hanes’ large-scale, low-cost global supply chain. Pacific Brands sources the significant majority of its underwear and intimate apparel production from third-party manufacturers, while Hanes relies primarily on company-owned manufacturing. The acquisition also would add to Hanes’ global product design, development and innovation capabilities that span the Americas, Europe and the Pacific Rim.”

“The Sheridan business, which accounts for a quarter of the core business, has benefited from newly combined infrastructure with the Underwear group. Sheridan markets luxury linens, towels, bedding accessories, and loungewear in the retail and wholesale channels and has recently launched babywear.”

Hanes stated that it will “seek to retain the Pacific Brands’ senior management team to run the business after the acquisition.” Bonds was launched as a women’s hosiery line in Australia in 1915 by George Allan Bond.