Mossimo, Mudd to Join Iconix

New York–based Iconix Brand Group, owner of Candie’s, Bongo, Joe Boxer, Rampage and Badgley Mischka brands, announced plans to separately acquire Santa Monica, Calif.–based Mossimo Inc. and the Mudd trademark from Mudd USA, a Delaware limited liability company.

Iconix will pay approximately $119 million in cash and stock for Mossimo, or about $7.50 per share—$3.25 in Iconix stock and $4.25 in cash. The deal also includes a one-time adjustment that calls for Iconix to issue an additional $16 million in stock if the acquisition does not help boost the company’s stock to $8.50 per share within one year of closing.

The merger agreement is subject to approval by Mossimo’s stockholders and calls for the company to have $17 million in cash at the time of closing. The brand is expected to generate $20 million–$25 million in royalty revenue in 2007.

Target Corp., which holds the exclusive rights for production and distribution of all of Mossimo’s branded products in the United States, has amended and restated its license agreement with the company, extending its license through January 2010.

“Our plan for Mossimo is to continue to grow the business at Target,” said Neil Cole, chairman and chief executive officer of Iconix.

The California casual brand has been an on-and-off target for Iconix since last summer, Cole said.

“California is where young fashion is being created,” he said. “There are great companies here.”

The state is familiar territory for Iconix. The company’s Rampage, Bongo and Joe Boxer brands got their start in California.

News of the merger pushed Mossimo’s shares up $2.17, to $7.64, on April 3, the day of the announcement. Iconix shares increased 58 cents, to close at $15.13 the same day.

A publicly traded designer and licensor of men’s, women’s and children’s apparel and accessories, Mossimo made news last year when founder and majority stockholder Mossimo Giannulli twice attempted to take the company private. In October, the company and Giannulli appeared to have reached an agreement to acquire all outstanding public shares in the company for $5 each. Giannulli’s previous bid in August topped out at $4 per share. The second deal, an estimated $22 million transaction, fell apart in November.

But serendipity sided with Giannulli. Despite the sale, his desire for a private company is about to come true. As part of the merger, Giannulli will remain with Mossimo for at least three to four years, Cole said. But Iconix will sell Giannulli’s Modern Amusement, the menswear brand acquired by Mossimo in 2004.

“It will be spun off, retained and run by [Giannulli] as a completely separate company,” Cole said.

How much of Giannulli’s estimated $88 million portion of the Mossimo sale will go toward that deal has not been determined.

“Iconix has created something very exciting and has developed the licensing model into a business of much greater scale, diversification and synergy,” Giannulli said in a statement. “Adding the Mossimo brand to this exciting platform is a compelling way to generate value for our shareholders.”

Iconix plans to further diversify its offerings by acquiring the Mudd trademark. Established in 1996, Mudd sells girls’ and juniors’ lifestyle apparel to department stores and specialty- store chains. The estimated purchase price for the trademark, which is controlled by Hong Kong–based Tack Fat Group International Ltd., is $88 million, comprised of 50 percent cash and 50 percent Iconix stock.

“This acquisition would further diversify our revenue base and enhance our penetration within the youth market,” Cole said.

Under the terms of the agreement, the company will assume 11 existing license agreements for Mudd and retain Mudd USA as its core denim licensee. Iconix estimates the brand may reach up to $20 million in royalty revenue in 2007.

“Mudd is a great jeans company,” Cole said.

Iconix moved away from manufacturing in recent years to focus on licensing its brands to third-party manufacturers of apparel, footwear and accessories. The company plans to continue growing and diversifying its offerings in the future.

“Our goal is to maximize our existing brands, while at the same time aggressively pursuing strategic operations,” Cole said.

The addition of the Mossimo and Mudd brands could boost Iconix’s annual retail sales to $3.5 billion, according to Cole. The two acquisitions prompted the company to update its earnings estimates for 2006, amending its estimated earnings per share to between 75 and 80 cents, up from 65–70 cents. —Erin Barajas