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Fossil Takes Skagen Designs

Zacks Equity Research

Fossil, Inc. (FOSL) has consummated the acquisition of privately held Nevada-based Skagen Designs, Ltd. and some of its partners for $231.7 million in cash (including a working capital adjustment of approximately $6.7 million), and 150,000 Fossil shares. The company has announced the acquisition in January this year.

As per the deal, the sellers of Skagen may get an additional 100,000 Fossil shares, if Skagen products meets certain revenue targets.

Skagen Designs is an international company engaged in the manufacture and marketing of contemporary design accessories including watches, jewelry, sunglasses and clocks.

Besides acquiring Skagen’s unique designs, Fossil can also expand its brands in the markets of Europe and other emerging markets of East Asia, where Skagen has significant presence. Further, Fossil can utilize Skagen's established supply chain with its production resources and boost sales in European, Middle Eastern, and East Asian regions.

Skagen has company-owned retail stores in Denmark, Germany, U.K. and Hong Kong and sells products in 75 markets globally, whereas the watchmaker Fossil has licensing agreements with designer brands such as Michael Kors, Marc by Marc Jacobs, Burberry, Emporio Armani, and Karl Lagerfeld.

Although Fossil is associated with a host of designer brands and also generates double-digit sales, the company’s high production costs weigh on its margins and in turn its earnings growth.

Fossil, which supplies its products to wholesale customers like Nordstrom Inc. (JWN), Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT), currently retains a Zacks #3 Rank (short-term Hold rating) on the stock. On a long-term basis, we provide a Neutral recommendation on the stock.

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