Crocs Inc. (CROX:US), the shoemaker known for its brightly-colored clogs, is in talks with buyout firms including Blackstone Group LP about a possible investment, people with knowledge of the matter said.
Proceeds from the sale of a minority stake or debt could be used for a stock (CROX:US) buyback, said the people, who asked not to be identified because the information is private. The private-equity investor would then help map out a turnaround plan for the retailer, including having a say over senior management (CROX:US) candidates, the people said.
The investment, known as a private investment in public equity, could take the form of convertible notes or preferred shares, which carry lower risk than equity, one of the people said. Crocs previously held buyout talks with private-equity firms that didn’t lead to a sale, people familiar with the situation said this month.
Crocs has been trying to regain its footing after its clogs lost popularity and sales were hurt by knockoffs amid a slump in U.S. consumer spending. While Chief Executive John P. McCarvel, who took the helm in March 2010, has overseen a recovery by expanding the company’s products to include other styles of shoes and opening new stores, Crocs has fallen short of profit forecasts and cut sales estimates.
Shares of the Niwot, Colorado-based shoemaker have dropped more than 20 percent (CROX:US) from their 2013 high, and as of yesterday’s close at $13.54 were worth about one-fifth of what they fetched in 2007, when sales were still doubling each year. By comparison, the Bloomberg Americas Apparel Index, which includes Nike Inc. and Steven Madden Ltd., is up more than 40 percent this year at a record.
Katy Michael, a spokeswoman for Crocs, and CEO McCarvel didn’t respond to requests for comment. Peter Rose, a spokesman for Blackstone, declined to comment.
The retailer, which had little debt and more than $330 million of cash and equivalents at the end of September, said last month it increased the size of its share repurchase plan to as much as 17.8 million shares, or about 20 percent of shares outstanding. Buying back stock would help minimize dilution to existing shareholders.
Crocs was unable to reach an agreement with potential buyers for a buyout in part because the drop in its share price has left a large gap between what potential buyers were offering and what the company was willing to accept, the people familiar with the situation said this month. Clogs still account for 45 percent of unit sales, Crocs said on its third-quarter earnings conference call.
The private-equity industry, which spent about $36 billion on retail acquisitions between 2004 and 2007, according to data compiled by Bloomberg, has had mixed results in turning around troubled retailers amid slow growth in the U.S.
Bain Capital Partners LLC’s Burlington Stores Inc. sold shares this year in a deal that values the retailer at $2.7 billion, compared with $2.1 billion when the Boston-based fund bought it in 2006. Warburg Pincus LLC, owner of Neiman Marcus Group LLC, posted 150 percent profit from selling the high-end retailer to a private-equity group, announced in September, people familiar with the situation said then.
Meanwhile, an IPO for Michaels Stores Inc., owned by Blackstone and Bain, is still pending since the company filed to go public in March 2012. Toys R Us Inc., owned by Bain and KKR & Co., withdrew its plan to go public in March after filing for an IPO in May 2010.
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