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VF to Split Into Two Public Companies, Breaking out the Jeans Business

VF Corp.’s board of directors said Monday it intends to separate the company into two independent, publicly traded companies–VF Corp., a global apparel and footwear firm, and a not-yet-named company that will hold VF’s Jeans and VF Outlet businesses.

As part of the move, VF expects the new company to position it as a global leader in denim.

VF has been working toward a transformation, and Steve Rendle, company chairman, president and CEO said those efforts are already bearing fruit, particularly with regard to progress on its strategic initiatives and portfolio management.

“With these strong foundations in place, we are now ideally positioned to create two independent, leading, global companies,” Rendle said. “In alignment with our strategic plan, the decision to separate these businesses will allow VF to sharpen its focus as a consumer-centric and retail-minded organization anchored in activity based lifestyle brands.”

Rendle said the Jeans platform will be a “successful, sustainable business with iconic global brands and a clear path to value creation as a standalone entity” and that the new direction will mean VF and the new company denim-oriented company will have the “resources, management focus and financial flexibility to thrive in a dynamic consumer marketplace.”

The company expects to create these firms through a tax-free spin-off to VF’s shareholders.

During the past few ears, VF has undertaken a series of transformative actions in its brand portfolio that have led to strong value creation, including an annualized total shareholder return of more than 17 percent since 2000.

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In 2017, VF unveiled its five-year growth priorities that included a strategic realignment of its brand portfolio to better position the company for long-term success in a rapidly changing business environment. Since then, VF has acquired Williamson-Dickie, and the Icebreaker and Altra brands, and the sold the Nautica brand and the Licensed Sports Group, including the Majestic brand.

“Through these actions, the company has sharpened its focus on activity based outdoor, active and work lifestyles,” VF said.

As the company continues to implement its 2021 strategic growth plan, the board believes separating the businesses into two, independent, publicly traded entities will position the company for the best success moving forward, as the synergies across these businesses had become less clear over the years.

The separation is expected to offer benefits beyond greater focus and positioning for the jeans business, including enhanced strategic and management focus, reduced managerial and operational complexity, a flexible capital structure with the ability to fund targeted profitable growth and an operational and financial profile that will more closely align with its natural investor type.

With estimated annual revenue of more than $11 billion, the new VF company will have a mid-teen total shareholder return target, including a strong dividend yield in line with the S&P 500, the company said. The move will also allow VF to continue to pursue an acquisition strategy, explore new growth areas and investment more in its existing brands, which include The North Face, Vans, Timberland, JanSport, Smartwool, Altra and Eagle Creek.

Revenue at VF increased 23 percent to $2.77 billion in the first quarter ended June 30, including a $249 million revenue contribution from the Williamson-Dickie, Icebreaker and Altra acquisitions. Net income for the period jumped 46 percent to $160.36 million.

Consistent with its enhanced focus on the outdoor and active consumer, VF will move its global headquarters to the metro Denver area, which will also serve as the home for its Global Innovation Center for technical fabrics and its Digital Lab.

“Locating these brands, along with select VF leaders, at the base of the Rocky Mountains will enable us to accelerate innovation, unlock collaboration across brands and functions, attract and retain talent and connect with consumers,” said Rendle, who will continue to lead VF.

The new company will focus on its heritage brands Wrangler and Lee brands, and include the VF Outlet business. With estimated annual revenue of more than $2.5 billion and a high single-digit total shareholder return target, the new company will have “an attractive financial profile, including a sustainable high dividend yield,” the company noted.

In the first quarter, the jeans segment saw revenue rise 3 percent to $603.77 million. Profits grew 7 percent to $89.05 million.

The jeans company will maintain its “best-in-class supply chain, channel and category management expertise, reinforced by deep and long-standing relationships with leading global retailers,” VF said. It will also carry with it a diversified geographic exposure and plans to extend its geographic footprint with a sharp focus on Asia, building on its established presence in China.

The company also announced the anticipated designation of Scott Baxter as CEO of the new company and Rustin Welton as chief financial officer, effective upon completion of the transaction.

Baxter ran the jeans business from 2011 through 2015, a period, Rendle said, “during which the business grew at a mid-single-digit rate.” The company plans to announce additional members of the denim-focused company’s executive team and composition of the board of directors ahead of the completion of the transaction.

The new company’s global headquarters will be in Greensboro, N.C., where VF, founded in 1899, had long been based. The Lee brand will move its headquarters to Greensboro from Kansas City, joining the Wrangler brand.

“We’re proud of our Greensboro, N.C., roots and remain committed to the community, including a strong ongoing employment presence,” Rendle said. “Combined with the relocation of the Lee brand from Kansas City and the establishment of a major new public company with Greensboro headquarters, we expect that total VF and new company employment in the area will remain at current levels.”

The separation transaction is targeted for completion in the first half of calendar 2019, subject to final approval by the company’s board, customary regulatory approvals and tax and legal considerations.

Barclays is acting as financial adviser to VF Corp. Davis Polk and Wardwell LLP is acting as legal adviser.