G-III Apparel Snaps Up LVMH's Donna Karan

The sale marks a rare retreat for LVMH which had struggled to grow sales of apparel brands DKNY and Donna Karan.
By Paul Whitfield ,

G-III Apparel (GIII) - Get Report has bagged fashion label Donna Karan., agreeing to pay $650 million including debt for the New York-based clothes maker owned by France's LVMH (LVMUY) .

The deal marks a rare fashion disposal for LVMH, which has struggled to grow sales of the Donna Karan and DKNY brands after acquiring their parent in 2001 for about $690 million. The last label LVMH sold was Christian Lacroix in 2005.

"When G-III approached us about acquiring the brand, we concluded that the time was right," said LVMH group managing director Toni Belloni in a statement.

The sale comes just over a year after Donna Karan, the labels founder and namesake, retired from the business claiming its French owner had ignored her brands.

The French company late last year pulled the DKNY Jeans and street-wear division DKNYC, which together accounted for about €250 million ($274 million) of the unit's total €400 million of estimated sales, according to Goldman Sachs.

The sale "is likely to be taken as a small positive by the market for LVMH given the limited results in restructuring the DKI brand, enabling the company to refocus its resources onto its other restructuring brands, including Marc Jacobs, Tag Heuer and DFS [a duty free retailer]," noted Goldman analyst Richard Edwards in a note published Monday.

LVMH shares traded Monday morning at €144.35, up 1.44% on their Friday close.

LVMH is due to report its first half results after the market closes in Paris on Tuesday. Analysts expect the world's largest fashion house to post low-single digit sales growth over the second quarter, in line with its first quarter growth of about 3%. Particular interest will be paid to the performance of its watches and jewellery unit, where sales grew 7% in Q1 following a dip in the final quarter of 2015.

Nasdaq-listed and New York-based G-III owns fashion brands including Andrew Marc and swimwear maker Vilebrequin and holds the licenses for brands including Calvin Klein, Guess? and Dockers.

G-II said it expected the acquisition of Donna Karan to dilute earnings during its fiscal year ending January 2018 and to be accretive after that.

G-III will pay $75 million in newly issued stock to LVMH and finance the remaining payment with debt. Barclays and JPMorgan Chase Bank will provide a $525 million secured loan and an additional $450 million six-year term loan in connection with the acquisition.

Shares in G-III closed Friday at $50.16, down $0.48 or almost 1% on their Thursday close, leaving the company with a market capitalization of $2.26 billion.

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