Timberland inks first acquisition, snapping up SmartWool - SNEWS

Timberland inks first acquisition, snapping up SmartWool

The Timberland Company (NYSE: TBL) inked a deal late on Nov. 7 to acquire Steamboat Springs, Colo.-based, SmartWool Corp. for $82 million in cash. Timberland said it expects the acquisition to add 2 cents to 3 cents per share to its earnings in 2006.

The Timberland Company (NYSE: TBL) inked a deal late on Nov. 7 to acquire Steamboat Springs, Colo.-based, SmartWool Corp. for $82 million in cash. Timberland said it expects the acquisition to add 2 cents to 3 cents per share to its earnings in 2006.

SmartWool will operate as a subsidiary of Timberland and remain based in a building that once served as the air terminal for Steamboat Springs. Chip Coe, SmartWool's president, told SNEWS® that there will be no changes to management or staff.

SmartWool's 2005 revenues are anticipated to be approximately $42 million. Those numbers do not include the sales of Timberland footwear made with SmartWool lining since, as Jeffrey Schwartz, Timberland's CEO, told us, "those sales fall under Timberland's side of the ledger."

Coe will report to Gary Smith, Timberland's senior vice president overseeing the outdoor performance group.

The acquisition is expected to be completed by mid-December.

Founded in 1994 by New England ski instructors Peter and Patty Duke, SmartWool grew from a line that launched with five sock styles to a company that had revenues of approximately $30 million in 2003 selling nearly 3 million pairs of socks annually. In 2003, the Dukes sold the remainder of their shares to majority shareholder RAF financing. Growth was reported at 30 percent per year at that time and insiders have told us the pace continues.

SmartWool's success naturally led to potential suitors sniffing about.

"We've had interested buyers come to us over the years, but we really haven't paid them much attention," Coe said. "However, after a few fly-bys with big players in the industry, our ownership group asked Wachovia Securities in April to assemble a handful of strategic partners." SNEWS® learned that SmartWool was being shopped in June, although Coe would not official confirm any sale talks when questioned.

Timberland was only one of the three or four eventually invited to the table, but the fact that SmartWool and Timberland launched a partnership in early 2005 to develop and market performance footwear featuring SmartWool linings gave Timberland the inside track during the acquisition talks, we have been told.

For Schwartz, the acquisition is an ideal fit for both companies. "I believe this is like peanut butter meets chocolate from the ankle down," Schwartz told SNEWS®.

Two areas that Timberland will look to immediately assist SmartWool will be in the expansion of the company's international presence (which is currently in the low, single-digit percentage) and through access to Timberland's IT, dealers services, customer services and design resources.

Where the two companies already mesh nicely is in terms of corporate culture.

Both companies share a similar corporate philosophy grounded in social responsibility. Coe told us that SmartWool's practice of giving employees 20 hours of paid time off for volunteering would now be increased to match the Timberland corporate standard of 40 hours of paid time off for volunteer work. Other programs SmartWool has in place, such as the SmartWool Advocacy Fund and the SmartWool Breast Cancer Fund, will only be strengthened with Timberland's full blessing, Coe told us.

Schwartz is very passionate about the acquisition because of the company's quality, as well as SmartWool's culture -- a message that will increasingly resonate with customers.

"If you combine the best merino and best designs and best products with a culture of social justice and best practices, then what the consumer is buying is no longer simply about commerce, it is about values and for an increasing number of consumers, that is special," said Schwartz.

"What gets me so excited is this is about rescaling business and brand building into personal terms that becomes more about relationships with our consumers than anything else," added Schwartz.

What's next for SmartWool?
SmartWool socks, base layers and underwear are presently sold in just over 2,000 outdoor specialty stores throughout the United States and through independent distributors in Canada, Europe and Asia.

But Schwartz has high hopes for growth by expanding international sales and without expanding domestic doors.

"I see good growth in the base business," Schwartz told us. "SmartWool has entered the lifestyle business, and they are doing well, but my guess is we can add value in the lifestyle world and we are more tuned by experience into what is going on in the world of fashion. And we are still only talking about socks here.

"There is also no doubt in my mind we can build a huge business in just core socks internationally," said Schwartz.

Domestically, Schwartz told us that he wants to triple and even quintuple SmartWool's business domestically, but he won't need more doors to do it.

"We see real opportunities to increase SKUs patiently and carefully in the same distribution, as long as the brand-building model is directed by SmartWool," said Schwartz. "They (SmartWool) are mindful of apparel failures before, but if you ask consumers what they would think of SmartWool apparel, we hear if the apparel is done as well as the socks, we'd love to see it.

"Permission is a great asset," added Schwartz, "but the one thing you don't want to do with permission is misuse it and try to bring something to market that is simply trading off the name."

Coe told us he expects to see the SmartWool clothing side ramping up again, but most likely with mid-layer expansion. And while he does not believe the company will try to revisit the soft shell, he does expect the industry will see SmartWool introduce training-weight pieces that combine merino with other fibers, like stretch nylon or stretch poly. Prototype design work is already underway on tights, jackets and pullovers, we've been told.



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