Dive Brief:
- Kontoor Brands has agreed to sell the Lee denim brand to Authentic Brands Group for what could add up to $1 billion. The deal is expected to close in the second half of the year, the companies said Thursday.
- Kontoor’s board unanimously approved the transaction, which involves an initial $750 million plus a potential $250 million earnout based on Lee’s performance in Authentic’s portfolio.
- Authentic said it will convert the Lee business into a licensing model as soon as the deal closes.
Dive Insight:
Rather than continue on with the rehabilitation of its Lee brand, Kontoor earlier this month said it would put it up for sale, surprising many analysts. The second surprise came on Thursday, with heftier-than-expected dollar signs.
“Recall just last week after meeting with [Kontoor] we expected just $600-625M in gross proceeds, which puts today's price much higher than we (or any other investor we spoke to) expected,” Wells Fargo analysts led by Ike Boruchow said in emailed comments Thursday.
Kontoor, which said its decision to unload Lee came after an extensive consumer study, will be left to focus on the two other names in its portfolio, Wrangler and Norwegian outdoor brand Helly Hansen. Lee and its turnaround had become a distraction for the conglomerate, Boruchow said.
“As a fashion forward and innovative brand, Lee required a constant influx of investment, which began to dry up” when it was owned by VF Corp, he also said. VF decided to spin off the Wrangler and Lee denim labels, creating Kontoor, in 2018.
In a few months, assuming the deal closes, the project will fall to Authentic as it takes over Lee’s brand identity. More accurately, perhaps, it will fall to the yet-to-be-determined entity that takes over Lee’s operations. The brand management giant said it is already “in discussions with leading brand operators to support Lee's existing business and expand it across content, experiences and heritage-driven lifestyle categories.”
Lee generates some $1.5 billion in “retail-equivalent sales” each year across 73 countries, mostly from the U.S and Canada, according to Authentic. This would get the firm closer to its five-year goal of reaching $100 billion in annual retail sales, according to a company spokesperson.
