Business Context and Reporting Period
Company: DSW Inc. (filing as DSW Inc., formerly known as DSW Shoe Warehouse, Inc. in the context of the subsidiary)
Filing Type: Form 8-K (Current Report)
Date of Report: October 10, 2018
Event: Announcement of a binding securities purchase agreement to acquire substantially all of the business of Camuto Group LLC (excluding Bernard Chaus Inc. operations) and an amendment to the company's credit agreement.
Key Financial Metrics and Transaction Details
- Total Acquisition Value: Approximately $341.3 million (subject to customary adjustments).
- Operating Business Purchase Price: Approximately $198.3 million (paid by DSW HoldCo).
- Intellectual Property Purchase Price: Approximately $143.0 million (paid by ABG-Camuto).
- DSW Investment in IP: DSW will fund 40% of the intellectual property purchase price through its investment in ABG-Camuto.
- Implied Total Valuation: The transaction values Camuto at $375 million, including the operations of Bernard Chaus Inc.
- Credit Facility Amendment: The unsecured revolving credit facility commitment will increase by $100 million to a total of $400 million upon closing of the acquisition.
Material Changes and Transaction Structure
The filing details a strategic acquisition and a corresponding financing amendment:
- Acquisition Structure: DSW HoldCo (a wholly-owned subsidiary) acquires Camuto's operating business. ABG-Camuto, a joint venture between DSW (40% interest) and Authentic Brands Group (60% interest), acquires the intellectual property.
- Post-Closing Arrangement: Following the acquisition, an affiliate of DSW will enter into a license agreement with ABG-Camuto to design, manufacture, distribute, and sell products under the acquired brands.
- Financing: The credit agreement was amended to permit the transaction and increase borrowing capacity. New subsidiaries formed or acquired in the deal must become guarantors within 30 days of closing.
Guidance, Outlook, and Risks
- Expected Closing: The acquisition is expected to close at the beginning of DSW's fiscal fourth quarter.
- Regulatory Status: The company has received antitrust clearance in the United States and does not expect to require clearances in other jurisdictions.
- Conditions: Completion is subject to the satisfaction or waiver of customary closing conditions.
- Risks: Forward-looking statements are subject to risks including the ability to complete the acquisition on time, termination of the purchase agreement, legal proceedings, and failure to satisfy closing conditions.
Investor Verification Checklist
- Verify the final purchase price adjustments and the exact closing date in the fiscal fourth quarter.
- Confirm the terms of the license agreement between DSW affiliates and ABG-Camuto regarding brand usage.
- Monitor the integration of the new subsidiaries as guarantors under the amended credit agreement.
- Review the full text of the Securities Purchase Agreement (Exhibit 2.1) for specific representations and warranties.
- Assess the impact of the $100 million increase in credit facility commitments on future liquidity and leverage ratios.