Payless ShoeSource Inc. announced Tuesday that it would buy Stride Rite Corp. for $800 million plus assumption of Stride Rite debt, a move that would give the Topeka-based holding company a new name.
Payless said that upon closing of the purchase, expected by the third quarter, the company would be renamed Collective Brands Inc., a holding company to be based in Topeka with three stand-alone business units:
¢ Payless ShoeSource, which would remain based in Topeka. It has nearly 4,600 stores.
¢ Stride Rite - which owns or licenses brands including Stride Rite, Keds, Sperry Top-Sider, Tommy Hilfiger Footwear, Saucony and Robeez - which would retain its headquarters in Lexington, Mass. It has more than 300 stores.
¢ Collective Licensing International, a licensing and brand-management company that owns Airwalk and other brands popular in Payless stores, which would remain in Denver. Payless acquired Collective Licensing in March for $91 million.
There are no plans to sell Stride Rite brands in Payless stores, said Matt Rubel, Payless' chief executive officer and president, who is slated to serve as CEO of Collective Brands. But Stride Rite would gain the ability to extend its reach into international markets, boosting the entire Collective Brands portfolio.
"We see this as a growth acquisition," Rubel told analysts Tuesday during a conference call.
The companies say they expect minimal effect on employment across the three businesses because they would be operating as separate strategic units.
Payless employs about 1,100 people, including dozens of Lawrence residents, at its world headquarters in Topeka. The company announced earlier this year that it would be closing its Topeka distribution center in the summer of 2008, a move that the company expects to cost about 550 jobs.
Both Payless and Stride Rite said Tuesday that the purchase had been approved by the boards of both companies. The deal also awaits approval from Stride Rite shareholders, and the name change - from Payless to Collective Brands - is subject to approval from Payless shareholders.
At $20.50 per share, Payless' offer represents a 32 percent premium over Stride Rite's average stock price for the past three months. Rubel said that Payless would use about $200 million in cash for the purchase, along with financing from firms such as Citigroup and JP Morgan.
During the conference call, Rubel acknowledged that Payless had approached David Chamberlain, Stride Rite's chairman and CEO, about a purchase "some time ago," but that the timing wasn't right.
Since then, Rubel said, "we came to a point of view that this was the best thing for both companies."
Payless and Stride Rite announced the deal after markets closed. Payless shares closed Tuesday at $31.90, down 27 cents, or 0.8 percent; Stride Rite closed at $15.45, up 27 cents, or 1.8 percent.