Pacific Brands in Talks With KKR Following Unsolicited Takeover Approach

KKR & Co., the private-equity firm run by Henry Kravis and George Roberts, is in talks with Pacific Brands Ltd. (PBG) over a possible buyout, sending shares of the Australian apparel maker to the biggest gain in six months.

Pacific Brands, which holds the rights to the Everlast, Clarks and Bonds brands, rose 14 percent after saying it had been approached by KKR. No price was disclosed. The Melbourne- based company’s market value was A$584 million ($602 million) at the close of trade in Sydney.

“It is trading at a very cheap multiple,” said Tony Wilson, an analyst at Melbourne-based Evans and Partners. “There’s an opportunity there to develop an online business and extend some of their own retail operations. It may be that to take full advantage of that they’re better off in private equity hands.”

Pacific Brands, which manufactures and wholesales underwear, footwear and other clothing, has the second-lowest price to sales ratio in the 26 member S&P/ASX 200 Consumer Discretionary index, according to Bloomberg data. The value of acquisitions in the global apparel sector in 2011 fell by a quarter to $3.44 billion, and no deal worth more than $500 million has been announced since VF Corp.’s $2 billion bid for Timberland Co. in June last year.

Share Slump

Pacific Brands had fallen more than 80 percent since its peak in July 2007, and slipped 42 percent over the past 12 months to yesterday as it was hit by rising cotton prices and a decision by Wesfarmers Ltd.-owned discount store Kmart to stop stocking some of its products. The shares climbed 8 Australian cents to 64 cents in Sydney trading today.

The consumer index slumped 3.3 percent over the past month amid signs of stalling retail sales and warnings from Billabong International Ltd., JB Hi-Fi Ltd., and Kathmandu Holdings Ltd. of weak pre-Christmas sales.

“The reports of KKR (KKR)’s approach are the first from private equity in retail for many months,” Craig Woolford, an analyst at Citigroup Inc. in Sydney, wrote in a note to clients. “Is this a signal about valuations?”

An acquisition may see Pacific Brands purchased for less than it sold for 11 years ago when it was last taken private. The company, built up as the consumer division of defunct conglomerate Pacific Dunlop, was acquired for A$730 million in 2001 by CVC Asia Pacific Ltd. and Catalyst Investment Managers Pty. Its owners raised A$1.26 billion in a 2004 public offering.

More Deals

Takeovers in the retail industry involving Australian companies more than doubled last year to $3.4 billion, the highest for such deals since 2007, according to data compiled by Bloomberg. The figure for 2010 was $1.55 billion. The value of all transactions involving Australian companies reached $141.4 billion last year, down from $149 billion in 2010, the data show.

KKR increased acquisitions globally last year with 30 offers worth $15.2 billion, according to Bloomberg data, the highest dollar amount since 2007. It offered an average premium of 20 percent in 174 deals since 1988, the data shows.

KKR will need to overcome previous failed deals in Australia. The New York-based group made an attempted A$1.75 billion purchase of fund manager Perpetual Ltd. (PPT) in 2010 before the parties failed to agree terms, and lost out to a group including Carlyle Group and TPG Capital in a bid for hospital operator Healthscope Ltd.

“There is no certainty that these discussions will lead to any agreement being reached,” Pacific Brands said in a regulatory statement today.

Ian Smith, an Adelaide-based spokesman for KKR, declined to comment on the Pacific Brands statement.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net

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