BLOOMBERG: PPR Buys Volcom for $607.5 Million to Expand

Date: 02-May-2011

By Andrew Roberts

PPR (PP) SA agreed to buy Volcom Inc. (VLCM) for $607.5 million, its biggest purchase since Puma in 2007, to add skate- and snowboarding gear to its sports and lifestyle business.

PPR will pay $24.50 a share in cash for Costa Mesa, California-based Volcom, the companies said in a statement. The purchase has an enterprise value of $516.1 million. The bid values Volcom at 24 percent more than its April 29 closing share price of $19.73. The stock rose as high as $24.49 in Nasdaq trading today.

Volcom, whose products include $79.50 board shorts and $52 messenger bags, will complement Puma, which specializes in soccer and running, Paris-based PPR said. PPR Chief Executive Officer Francois-Henri Pinault is seeking to build a portfolio of brands around Puma as PPR has done in luxury goods, where smaller brands including Bottega Veneta support flagship Gucci.

The size is “quite reassuring because the market was worried that PPR could go for a big acquisition,” said Boris Bourdet, an analyst at Natixis Securities in Paris, by phone. “The results on the bottom line look slightly accretive,” excluding synergies, said the analyst, who recommends buying PPR shares.

Puma, known for its leaping-cat logo, is targeting an 11 percent increase in sales this year to 3 billion euros ($4.5 billion) and 4 billion euros by 2015. The total sports and lifestyle unit will have revenue of 5 billion euros by 2015, Chief Financial Officer Jean-Francois Palus said today, adding that there may be other purchases in the business. The acquisition will enhance PPR’s earnings from 2012.

Deal Multiples

PPR is paying almost 14 times earnings before interest, tax, depreciation and amortization for the 20-year old Volcom, which is more than the 11.9 times Ebitda it paid for Puma in 2007, according to Bloomberg data. Volcom sales had compound average growth rate of 12 percent in the last five years Pinault said. Volcom had net cash of $90 million in 2010.

“The lofty transaction premium reflects the strong authenticity of Volcom in the marketplace,” Brian Sozzi, an analyst at Wall Street Strategies Inc., wrote today in a note. PPR, which ruled out buying surf brand Quiksilver Inc. (ZQK) in December, can help Volcom expand internationally, the analyst said.

Volcom has “significant growth opportunities” in the U.S., Europe and Australia, Palus said on a conference call. PPR will develop the company’s store network globally and penetrate untapped markets in Asia, excluding Japan. Volcom products are sold in 40 countries, according to Pinault.

PPR shares rose as much as 1.80 euros, or 1.5 percent, to 122.55 euros and traded at 121 euros as of 4:22 p.m. in Paris. The company has gained 1.6 percent this year, giving it a market value of 15.3 billion euros. Volcom rose $4.66, or 24 percent, to $24.39 at 10:26 a.m. New York time in Nasdaq Stock Market trading. Earlier it climbed as high as $24.49, the biggest increase since May 1, 2008.

PPR Reorganization

PPR is reorganizing to focus on luxury goods and sports and lifestyle as it seeks to tap rising demand for branded clothing and accessories in emerging markets. PPR spun off African distributor CFAO in 2009 and sold furniture retailer Conforama in March. The French company plans also to shed online retailer Redcats and the Fnac electronics and media chain and use some of the proceeds for acquisitions.

Volcom, known for its diamond-shaped logo, had net income of $22.3 million in 2010 and revenue of $323.2 million, according to Bloomberg data. The company, which says it “embodies the creative spirit of youth culture,” generates two-thirds of sales in the U.S.

Peter J. Solomon Company acted as financial adviser to PPR while Wells Fargo Securities LLC advised Volcom, according to the statement. The transaction will be completed in the third quarter, according to the statement. Volcom officials that own 14.4 percent of the outstanding shares have agreed to tender all of their shares.

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