Nike to Divest Cole Haan to Apax
Global athletic footwear retailer, Nike Inc. (NKE) has found the right buyer for its Cole Haan affiliate brand in Apax Partners. The company has entered into an agreement with Apax Partners to sell its Cole Haan brand for $570 million. Nike expects to seal the deal by early 2013.
Apax Partners views Cole Haan as an iconic brand with broad consumer appeal and projects immense growth opportunities for this brand. Apax has joined hands with Jack Boys in order to facilitate the growth of the Cole Haan brand in the U.S. and internationally.
In an effort to cut costs and sharpen focus on its NIKE, Jordan, Converse and Hurley brands, Nike, in May this year, revealed its intention of offloading two of its brands – Cole Haan and Umbro. The company’s decision to sell these brands is guided by the fact that the performances at Cole Haan and Umbro brands failed to match up to that of its other brands. Additionally, Nike has been facing numerous challenges such as rising labor and material costs along with uncertainty in the European economies and decelerating future orders in China due to poor performances by these brands.
On October 24, 2012, Nike signed an agreement with Iconix Brand Group Inc. (ICON) to sell its Umbro brand for $225 million. The deal is expected to close by the end of 2012.
About Apax Partners
Apax Partners, a leading global private equity investment group, has been in the business for more than 30 years providing long-term equity financing to build and strengthen world-class companies. Funds under the advice of Apax Partners aggregate over US$35 billion around the world. Funds advised by Apax Partners are invested in companies across its global sectors of Tech & Telecom, Retail & Consumer, Media, Healthcare and Financial & Business Services.
Our Recommendation
We believe Nike’s decision to divest two of its underperforming brands will boost its bottom line. Meanwhile, in an attempt to expand its global reach and market share, Nike is capitalizing on growth opportunities in emerging markets, especially China. The company is focusing on other tools, such as a direct-to-consumer business model, to expand geographically. We believe Nike’s continued investment in China and focus on the direct-to-consumer business will not only help in expanding market share, but also will facilitate the strengthening of its competitive position.
However, we prefer to remain on the sidelines given sluggish discretionary spending, increase in operating costs, and the ongoing European crisis.
We retain a long-term 'Neutral' recommendation on Nike. The company currently has a Zacks #2 Rank, which translates into a short-term Buy rating.
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