Destination Maternity (DEST) and Orchestra Prémaman S.A. (ENXTPA:KAZI) today announced that they have entered into a definitive agreement («Agreement») to merge, creating a leading global provider of maternity apparel, childrenswear and baby hard goods. The strategic transaction, which was unanimously approved by the Boards of Directors of both companies, combines two highly complementary businesses resulting in enhanced capabilities for the benefit of customers, shareholders and employees. The combined company, which is expected to have pro forma revenues of approximately $1.1 billion, will also enjoy greater financial strength and flexibility, with the ability to deliver long-term operating performance and improvements through its increased scale and significant synergy opportunities.
Under the terms of the Agreement, Destination Maternity shareholders will receive 0.5150 of an Orchestra Prémaman S.A. («Orchestra») ordinary share, in the form of American Depositary Shares («ADSs»), for each share of Destination common stock they own. The implied offer price of $7.05 per share is based on Orchestra’s closing stock price and the EUR/USD exchange ratio on December 19, 2016, representing a 34.0 percent premium to its unaffected stock price of $5.26 on May 31, 2016, prior to Destination filing its 8-K filing on June 1, 2016, announcing Destination change-in-control compensation arrangements. On a pro forma basis, following the closing of the transaction, Destination shareholders will own approximately 28 percent of the combined company, and Orchestra shareholders will own approximately 72 percent. The stock-for-stock transaction is expected to be tax-free to shareholders. The merger is subject to customary closing conditions, including receipt of the required approval of both Destination and Orchestra shareholders. The parties currently expect the transaction to close mid-2017.
Commenting on the merger, Arnaud Ajdler, Destination’s Chairman, said, «This highly complementary business combination, which presents compelling value to our shareholders, is a transformative event for both companies. With the creation of one of the world’s largest specialty providers of maternity apparel and childrenswear, shareholders of both companies are poised to benefit from a highly diversified product portfolio, improved financial strength and flexibility, and greater distribution and sourcing capabilities. Likewise, consumers will benefit from a significantly expanded product offering that will meet their maternity and early childhood needs made available across multiple channels. With similar cultures and customers, we believe this transaction will enhance our competitive position and open up new avenues of growth for our respective brands in the United States, Europe, and beyond.»
Pierre Mestre, Orchestra’s Founder and Chairman, stated, «We are excited to bring together two companies that share a common vision to make innovative, fashionable and practical maternity goods and childrenswear available to the masses. The commonality in our target customers will drive incremental market penetration, marketing and cost efficiencies, and revenue growth. Orchestra and Destination will achieve greater growth and earnings together than they each could stand-alone. We are confident this merger will allow us to better compete in the rapidly changing retail landscape, benefiting our collective stakeholders over the long-term. We are excited to welcome Destination’s accomplished executives and associates to the Orchestra family.»
Summary of Strategic Benefits
The merger of Destination and Orchestra is expected to create numerous significant operational and financial benefits, including:
Enhanced Offerings, Product Portfolio and Customer Connectivity: By merging global leaders across maternity in the U.S. and childrenswear in Europe, the combined company will be able to offer its customers a comprehensive array of premier apparel and other products for the maternity, childrenswear and baby hard good markets. Orchestra allows Destination to dramatically grow the lifetime value of Destination’s customer base by extending its customer relationship from months into years. A unified retail strategy focused on customer connectivity will enable expectant mothers and new moms alike to access an exceptional stable of brands through multiple distribution channels and geographies.
Significant Sourcing Savings: The combined company is also expected to benefit from significant annual cost savings of $15-20 million from leveraging Orchestra’s highly efficient direct sourcing network with over 15 years of experience, which includes over 200 people on the ground in 6 buying offices.
International Growth Platform: Destination’s state-of-the-art retail distribution infrastructure and network of U.S. retail locations provides a platform to facilitate Orchestra’s entrance into the world’s largest and most profitable children’s market. Conversely, Orchestra has a global footprint of 560+ stores that primarily span across Europe, Africa, and Asia. Existing stores and new locations throughout the region, along with entry into new markets, provide ample opportunity for international expansion and cross-selling of Destination’s product lines.
Stronger Financial Profile and Meaningful Accretion: In addition to creating a global leader across maternity and children’s products, the transaction will enable the combined company to enjoy enhanced top line growth, a strong balance sheet and significant cash flow from diversified revenue streams. Including preliminary run-rate synergy estimates, the transaction is expected to be accretive to both margins and EPS.
Leadership and Organization
Following the closing, the combined company will have an eleven person board, including three independent directors designated by Destination, two additional independent directors, and one employee representative as required by French law. Mr. Mestre will serve as Chairman of the group. The group will be organized geographically, with a North America business unit and a Rest of World business unit. The two business units will leverage each other’s product and operational expertise and resources whenever possible.
Upon completion of the merger, the group, operated under the Orchestra name, will maintain its corporate headquarters located in Montpellier, France. Destination will maintain its headquarters in Moorestown, N.J. and its distribution facility in Florence, N.J.
Orchestra intends to file a registration statement with the U.S. Securities and Exchange Commission for the registration of the ADSs. Orchestra’s ordinary shares will continue to be listed on Euronext Paris stock exchange.
Adjusted EBITDA is a non-GAAP financial measure and should not be considered a replacement for GAAP results; Adjusted EBITDA excludes specified items such as restructuring costs, relocation costs, impairment charges and transaction related expenses and other one-time costs.
Guggenheim Securities, LLC is acting as financial advisor and Pepper Hamilton LLP and Bredin Prat are acting as legal advisors to Destination. Moelis & Company is acting as financial advisor and Jones Day is acting as legal advisor to Orchestra.
Orchestra specializes in the creation, manufacture, purchase and sale of all products related to children’s clothing and childcare products. The Group’s product range currently comprises clothing and footwear for children aged 0 to 14 years, maternity fashion and childcare products. Since 2012, Orchestra has become a major player on the European childcare products market, in particular due to external growth operations, such as the acquisition of Baby 2000 and the Prémaman Group, which is Europe’s oldest maternity wear brand, dating back to 1947. This strategy of growth and development in childcare products follows on the success of the first megastore opened in Saint-Aunès, a store concept offering an entire world revolving around babies. Having increased its presence internationally, the Group now operates in more than 40 countries, selling more than 80 million pieces per year.
Destination is the world’s largest designer and retailer of maternity apparel. As of October 29, 2016 Destination operates 1,229 retail locations in the United States, Canada, Puerto Rico and England, including 526 stores, predominantly under the trade names Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®, and 703 leased department locations. The Company also sells merchandise on the web primarily through its brand-specific websites, motherhood.com and apeainthepod.com, as well as through its destinationmaternity.com website. Destination has international store franchise and product supply relationships in the Middle East, South Korea, Mexico, Israel and India. As of October 29, 2016 Destination has 239 international franchised locations, including 21 standalone stores operated under one of the Company’s nameplates and 218 shop-in-shop locations.
Fuente: Seeking Alpha
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