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Iconix Plans To Go Private After Controversial Acquisition Deal

Iconix Brand Group, Inc., which owns several well known brands such as Joe Boxer, Buffalo Jeans, Mossimo and London Fog, among several others, will become a private company after the board accepted an acquisition offer from Lancer Capital LLC.

However, two major law firms have announced they are launching investigations into the deal on behalf of shareholders, with one saying the price tag is well under the true value of the company.

Iconix has been trading on Nasdaq under the symbol ICON, but said in a statement it has entered into a definitive agreement and plan of merger to be acquired by Iconix Acquisition Corp., an affiliate of Lancer Capital, LLC (“Purchaser”), in an all-cash transaction that values Iconix at approximately $585 million, including net-debt.

“Today’s announcement represents the culmination of a year-long examination by our Board of Directors of strategic alternatives for the Company,” said Bob Galvin, Chief Executive Officer. “After a thorough and deliberative examination of all potential strategic alternatives, the Board of Directors determined that the transaction with Lancer provides the best value for our stockholders. We expect that Iconix will continue developing its brands and supporting its partners as a private company.”

Shortly after the announcement hit the newswire, Weisslaw LLP and Rigrodsky Law issued press releases saying they are investigating the company for possible breaches of fiduciary duty to shareholder. The Weisslaw release was more detailed, saying in part, “Weisslaw LLP is investigating possible breaches of fiduciary duty and other violations of law by the board of directors of Iconix Brand Group, Inc. …  in connection with the proposed acquisition of the Company by Iconix Acquisition Corp., an affiliate of Lancer Capital, LLC. The transaction is structured as an all-cash tender offer in which the Company’s shareholders will receive $3.15 for each share of Iconix common stock that they own. The transaction is valued at approximately $585 million.

“WeissLaw LLP is investigating whether: (i) Iconix’s board of directors acted in the best interests of Company shareholders in agreeing to the proposed transaction, (ii) the $3.15 offer price adequately compensates Iconix’s shareholders, and (iii) all information regarding the process undertaken by the board and the valuation of the transaction will be fully and fairly disclosed. Notably, at least one analyst set a price target for the Company of $4 per share, $0.85 above the per-share offer price.”

However, while it’s true that Iconix may be valued higher by some analysts, it’s worth noting the stock market has not generally been kind to the company, which like many fashion companies has also struggled with revenue during the pandemic.

While the Enterprise Value based on the Most Recent Quarter (MRQ) sits at $610 million, the company’s market cap (the number of shares times the value of those shares) sat at just $45.2 million at time of writing. As well, the company is sitting on more than a half billion dollars in debt, and in the last quarter (Q1) Iconix reported revenue was only $23.6 million in the first quarter, a 15 percent decline, compared to $28.0 million in the first quarter of 2020.

The variation between the much higher Enterprise Value and the Market Cap generally makes it harder for public companies to raise money through equity, which may be one reason Iconix has taken steps to take the company private.

The company says that, upon the terms being met and subject to the conditions of the agreement, the purchaser will commence a tender offer to acquire all of the outstanding shares of Iconix’s common stock for $3.15 per share, in cash. The offer price per share of common stock represents a premium of 28.6% over Iconix’s closing share price on June 10, 2021, the last trading day prior to announcement and a premium of approximately 46.5% over the 30-day average volume weighted share price for the period ended June 10, 2021.

While the overall value of the deal is placed at $585 million, most of that is attributable to the amount of debt the company carries, which sits at $556 million, as opposed to the company’s stated value of its assets of $401 million.

The amount that would be paid to Iconix shareholders is much lower. According to the stock ticker on June 11, Iconix had 14.48 million shares outstanding, and at a price of $3.15 per share, the shareholders would be paid approximately $45.61 million, or slightly more than the current market cap.

Iconix says closing of the transaction is conditioned upon, among other things, satisfaction of a minimum tender condition, clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions. Upon completion of the transaction, Iconix will become a private company. Iconix currently expects the transaction to close before the end of the third quarter of 2021.

The Iconix board of directors has unanimously approved the transactions contemplated by the agreement, and determined that the agreement and the transactions contemplated by the agreement, are fair to, and advisable and in the best interests of the Company and its stockholders, and recommends the Company’s stockholders tender their shares in the offer.

 

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