Liz Claiborne's new long-term plan means Prana's on the sales block

When Liz Claiborne CEO William L. McComb announced that in the face of a flat to slightly down revenue year for the company he would be implementing cost-cutting measures and restructuring, Prana was one of 16 brands singled out for possible divestiture, discontinuation or licensing.
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When Liz Claiborne CEO William L. McComb announced that in the face of a flat to slightly down revenue year for the company he would be implementing cost-cutting measures and restructuring, Prana was one of 16 brands singled out for possible divestiture, discontinuation or licensing.

In the release, Liz Claiborne (NYSE: LIZ) stated, "The company is conducting a review of strategic alternatives - including possible divestiture, discontinuation, or licensing - for the following brands: C&C California, Dana Buchman, Ellen Tracy, Emma James, Enyce, First Issue, Intuitions, J.H. Collectibles, Kensie, Laundry by Design, Mac & Jac, prAna, Sigrid Olsen, Stamp 10, Tapemeasure and Tint. These brands are expected to generate 2007 sales of approximately $800 million. As this review will impact our retail partners, we will reach out to them to discuss business implications and potential opportunities for these brands."

McComb was quoted in the news release as saying, "These brands have loyal consumer followings and valuable distribution, represent meaningful growth opportunities and can excel with the right partners and necessary investment. They also have strong management teams that will be incented to continue growing and developing them concurrent with the review process. The company expects to announce the results of its strategic review and formal plans for these brands by the second quarter of 2008."

Click here to read the entire Liz Claiborne news release on SNEWS®.

Naturally, the rumor mill began to fly, but rather than rehash what the Wall Street Journal was reporting, SNEWS® placed a call to Prana CEO Beaver Theodosakis who spoke with us from New York following the Claiborne investor's conference call.

Theodosakis was quick to point out that when Prana was acquired in November 2005, it was with the idea that it would be an anchor brand in an action sports portfolio Liz Claiborne was planning to assemble. That never panned out as the parent company's resources became thin.

"We have been a lone wolf in the Liz portfolio and have not received the resources that we expected. (Selling Prana) was their hardest decision they told me because they see our potential and have not stepped up to support our plan," Theodosakis told SNEWS®. "They are very apologetic and are showing again what a class act they truly are. We have complete say in the new partner that we choose by contract, and they are very supportive to help us find the best home.

"We are excited to find a new 'big brother' to help us realize the brand's potential," added Theodosakis.

SNEWS® View: No real surprise frankly, given all the challenges the Liz Claiborne corporation is currently dealing with financially. The company simply does not have the resources it would require to implement the plan it had in mind when it acquired Prana in 2005. Consider that in 2005, the brand sold for $34.4 million, with an initial payment of $32.5 million and the retirement of debt at closing estimated at $1.9 million. The initial payment represented 60 percent of Prana's current valuation then. As was tradition with any acquisition by Liz Claiborne at the time, co-owners Beaver Theodosakis, Pam Theodosakis and Demian Kloer were locked into a long-term earn-out with additional payments in fiscal years 2008, 2009 and 2010 based on a multiple of Prana earnings. Insiders told SNEWS® had Prana been kept to term and the payouts matched sales Liz Claiborne was hoping for, the final earn-out could have been nearly three times sales, which were estimated to be just over $30 million at the time.

Money issues aside, we would suspect that this will not have much immediate effect on Prana, either at the retail level or as far as customers are concerned. Ever since the sale, other than some IT support, Liz Claiborne pretty much kept its hands off the company, meaning Prana remains as it was, with a quick turn-key change when a new owner steps up to the plate.

We do know that in 2005, Liz Claiborne was not among the highest bidders for the brand, though Theodosakis said then that the company was preferred for the cultural fit. Now that Liz Claiborne has to let go of Prana, we wonder if some of the jilted suitors from before will now pick up the phone once again. We would also suspect to see folks such as Kellwood toss their hat into the acquisition ring. That company just snapped up Royal Robbins, and is looking, we know, at other specialty apparel brands. Prana could be a good match, if the price is right. No matter what, Prana will not go to anyone Theodosakis and company are not completely satisfied with, and price is not the most important factor. Stay tuned.

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