V.F. Corp.: Implications Of A Potential Puma Acquisition

Recent rumors make sense

Earlier this month, rumors surfaced that Paris-based luxury company Kering (OTCPK:PPRUY) had put the German sporting goods maker Puma (OTC:PMMAF) on sale and that V.F. Corp. (NYSE:VFC) was a likely suitor.

These rumors make sense for two main reasons. First, Puma would fit well into VFC's portfolio of outdoor and lifestyle brands. Second, as explained in our previous articles on the company, VFC is widely expected to make a large acquisition (M&A is part of its DNA) now that it has completed the integration of Timberland and is back to a comfortable net debt/EBITDA of 0.4x.

Therefore, we have decided to have a closer look at the potential impact of such an acquisition on VFC's financials. Note that Puma's current operating issues (anemic revenue growth, declining margins) are unlikely to deter VFC in our view as the company has a history of successfully restructuring struggling companies.

Doing the math

Puma is currently valued at EUR2.8bn ($3.5bn). Assuming a 20% premium, VFC would have to pay EUR3.4bn or $4.2bn. This price suggests that VFC would not have to raise equity to fund the Puma acquisition as both the net debt/equity and net debt/EBITDA ratios would remain under control (70% and 1.8x, respectively) assuming a 100% debt financing. And as always, a financing structure based on debt is a key positive for EPS accretion and.....

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