Crocs, Inc. (NASDAQ: CROX) today announced that an investment
fund affiliated with Blackstone has agreed to purchase $200
million of newly issued series A convertible preferred stock (the
In connection with the investment, Crocs intends to revise its
capital structure to accommodate a $350 million
stock repurchase program approved by its board of directors. This includes
using the net proceeds of approximately $180 million
from the Preferred Stock as well as excess cash to fund the repurchase
plan. "We will add $200 million of
long-term non-publicly traded preferred equity and the stock repurchase
program, when completed, will reduce our publicly traded common stock float by
approximately 30% (at today's market price), while maintaining a strong net
cash position on our balance sheet. We expect these initiatives to reduce
volatility in both our common stock price and our shareholder base and provide
a strong foundation to unlock long-term value for our shareholders," said Jeff Lasher, Crocs chief financial officer.
"We've been unable to repurchase stock while negotiating this transaction,
but we now expect to do so beginning in the first quarter of 2014. We
intend to be patient, methodical and opportunistic as we execute this expanded
The Preferred Stock will have a 6.0% cash dividend rate and is
convertible into shares of common stock at a conversion price of $14.50 per share. This conversion price represents
a 9% premium to the closing price of $13.33 per
share on December 27, 2013, and a 10% premium to
the 30-day average closing price of $13.19 per
share. On an as-converted basis, the Preferred Stock will represent 13.8
million common shares, or approximately 13% of the fully-diluted common shares
outstanding after giving effect to the issuance.
At any time after three years from the issuance date, if the
closing price of Crocs common stock equals or exceeds $29.00
(i.e., 200% of the conversion price) for a period of 20 consecutive trading
days, then the shares of Preferred Stock will, upon notice from Crocs, convert
into shares of common stock. At any time after eight years from the
issuance date, Crocs will have the right to redeem, and the holders of the
Preferred Stock will have the right to require Crocs to repurchase, all or any
portion of the Preferred Stock at 100% of the stated value plus any accrued but
Consummation of the investment is subject to the satisfaction of
customary closing conditions, including expiration of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act, and is expected to close in January 2014.
John McCarvel also announced his
intention to retire as president, chief executive officer and board member on
or about April 30, 2014. "It has been an
honor to be part of the Crocs global team for the past decade and to lead it
since 2010," Mr. McCarvel said. "We've made tremendous progress
as a company over these past 10 years – from a one-season, one-shoe, and one-country
brand to a diversified, four-season global footwear leader that is on solid
financial footing. The investment by Blackstone is a vote of confidence
in our company and our brand, and Crocs will benefit from Blackstone's
financial, consumer, retail and brand experience and relationships."
The board has begun an outside search for Mr. McCarvel's replacement.
"John's contributions to this company are
immeasurable," said Thomas J. Smach, Crocs chairman of the board. "As
our CEO, he led a turnaround of Crocs and established it as a profitable,
diversified company with more than $1 billion in
annual revenue, strong cash flows, and a robust balance sheet with more than $300 million in net cash. Under his leadership,
Crocs has grown into a global branded company that employs 4,500 people and
sells over 55 million shoes per year in more than 90 different countries.
On behalf of the company's employees and directors, I would like to extend our
appreciation and gratitude to John and wish him and his family continued
success as he pursues his personal endeavors."
With its investment, Blackstone will be entitled to two seats on
the Crocs board of directors. "We expect Blackstone to contribute a
great deal of value to our board through its financial, consumer, retail and
brand experience and its global footprint," Mr. Smach said.
"While Blackstone's investment will represent only 13% as-converted
ownership at closing, we believe our company, shareholders, and employees will
benefit from 100% of the firm's focus, resources, expertise and efforts to
create shareholder value. We believe this transaction provides a
fantastic opportunity for our shareholders to participate alongside Blackstone
and benefit from its efforts to realize very attractive future returns."
Prakash Melwani, Senior Managing Director
and Chief Investment Officer of Blackstone's Private Equity Group said,
"Blackstone sees tremendous opportunity in the Crocs brand and global
franchise. The company has the infrastructure and products to enable continued
growth across the wide range of geographies and channels through which it
operates. We believe our consumer and retail investing experience coupled
with the network of value-added resources within Blackstone will make us a
strong partner for Crocs. We look forward to working with the Crocs Board
to deliver compelling long-term value to the company's shareholders."
"The partnership with Blackstone provides access to new
resources and additional experience that we believe will positively and meaningfully
impact the company's future performance," Mr. Smach added. "As
we look forward, 2014 will be a significant transition period for the
company. We will recruit a new CEO who will work with the reconstituted
board to refine our short-term and long-term strategic plans, which will
include a sharper focus on earnings growth with less emphasis on top-line
growth. We will focus on improving financial performance, particularly in
the Americas and Japan, as well as enhancing our
global retail execution. As we increasingly focus on profitable growth
and retail excellence, we may moderate the pace of our investments in new
retail stores; however, we remain focused on creating long-term value for Crocs
shareholders. Over time, we intend to further elevate our brand
positioning by enhancing our consumer-driven marketing and distribution
strategies and capabilities."
Fourth Quarter Guidance
Crocs also updated its fourth quarter 2013 outlook and currently
expects revenue to be at the low end of the previously provided guidance range
of $220 million and $225
million, and diluted loss per share to be at the low end (meaning the
higher loss) of the previously provided guidance range of ($0.20)
and ($0.23). Excluded from this outlook are all
costs and expenses associated with the Blackstone transaction, the tax expense
associated with the repatriation of excess foreign cash, charges associated
with separation agreements, retail store impairments, other asset impairments
and legal reserves. We expect these aggregate charges in the fourth
quarter to be in a range of $47 million to $52 million,
which is an additional loss per diluted share of $0.45 to
$0.50. The cash portion of the aggregate charges in the fourth
quarter is estimated to be in a range of $20 million to
$25 million. While not currently estimable, we expect additional
restructuring charges may be necessary in 2014 as we refine our strategic plan.
Moelis & Company LLC is acting as financial advisor and
Perkins Coie LLP is acting as legal counsel for Crocs. Piper Jaffray & Co. is acting as financial advisor
and Simpson Thacher & Bartlett LLP is acting as legal counsel for
Blackstone in connection with the investment.
About Crocs, Inc.
Crocs, Inc. is a world leader in innovative casual footwear for
men, women and children. Crocs offers several distinct shoe collections with
more than 300 four-season footwear styles. All Crocs™ shoes feature Croslite™
material, a proprietary, revolutionary technology that gives each pair of shoes
the soft, comfortable, lightweight, non-marking and odor-resistant qualities
that Crocs fans know and love. Crocs fans "Get Crocs Inside" every
pair of shoes, from the iconic clog to new sneakers, sandals, boots and heels.
Since its inception in 2002, Crocs has sold more than 200 million pairs of
shoes in more than 90 countries around the world. Visit www.crocs.com for
Blackstone (NYSE: BX) is one of the world's leading investment and advisory
firms. Blackstone seeks to create
positive economic impact and long-term value for its investors, the companies
they invest in, the companies they advise and the broader global economy.
Blackstone does this through the commitment of their extraordinary people and
flexible capital. Their alternative asset management businesses include the management
of private equity funds, real estate funds, hedge fund solutions,
credit-oriented funds and closed-end mutual funds. Blackstone also provides
various financial advisory services, including financial and strategic
advisory, restructuring and reorganization advisory and fund placement
services. Further information is available at www.blackstone.com.