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Kathmandu announces $350 million acquisition of Rip Curl

The Kathmandu Holdings Ltd (ASX: KMD) share price will be one to watch when it returns from its trading halt later this week.

The retailer requested a trading halt this morning whilst it undertakes an equity raising to fund a major acquisition.

What did Kathmandu announce?

This morning Kathmandu announced that it has entered into an agreement to acquire Rip Curl.

According to the release, the company will acquire 100% of the shares of the iconic Australian global action sports brand for A$350 million (NZ$368 million).

Kathmandu CEO, Xavier Simonet, said: “This is a fantastic opportunity for Kathmandu to grow and diversify. The acquisition of Rip Curl transforms Kathmandu into a NZ$1.0 billion outdoor and action sports company, anchored by two iconic global Australasian brands.”

“The combination of Kathmandu, Oboz and Rip Curl achieves diversification in product, channel, geography and seasonality, and creates a platform for the acceleration of our brands’ global expansion into new channels and markets. Importantly, there is also strong cultural alignment between our brands, underpinned by a shared focus on quality, innovation and sustainability,” he added.

The release explains that the combined group will have a deeper and more meaningful global presence, with a combined footprint of 341 owned retail stores, 254 licensed stores, and over 7,300 wholesale doorways globally. This is expected to drive scale benefits.

Management expects the transaction to deliver meaningful earnings per share accretion for Kathmandu shareholders, with FY 2020 pro forma earnings per share accretion in excess of 10% pre-synergies.

To fund the acquisition, the company is launching an underwritten 1 for 4 pro-rata accelerated entitlement offer to raise A$138 million (NZ$145 million) at A$2.37 per new share. This represents a 15% discount to the last close price.

It will also place approximately A$31 million (NZ$32 million) of new Kathmandu shares with the founders and CEO of Rip Curl, which will be subject to escrow for 12 months following issue. The rest will come from its A$220 million (NZ$231 million) senior secured debt facilities.

While the transaction will require shareholder approval at a special meeting of shareholders to be held on October 18, I can’t see there being too many objections. Overall, I think this is a good acquisition by the company and believe it will add value over the coming years.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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