Mill Road Capital has agreed to acquire R.G. Barry Corp. for $19 per share in a transaction valued at approximately $215 million. Peter J. Solomon Company is providing financial advice to R.G. Barry while Foley Hoag is advising Mill Road. Headquartered in Pickerington, Ohio, R.G. Barry is a maker of accessories brands.
PICKERINGTON, Ohio, May 2, 2014 /PRNewswire/ — Accessories marketer R.G. Barry Corporation (Nasdaq: DFZ) and Mill Road Capital, a private equity firm, announced today the signing of a merger agreement pursuant to which Mill Road will acquire all of the outstanding shares of R.G. Barry Corporation for $19.00 per share in cash, reflecting an equity value of approximately $215 million. The merger will result in R.G. Barry becoming a wholly-owned subsidiary of a newly-formed corporation controlled by Mill Road.
The $19.00 per share cash merger price represents a premium of 18% compared to the 30-day average price of the stock prior to the announcement of Mill Road’s initial proposal on September 11, 2013, and is 67% higher than the 52-week low and 6% higher than the 52-week high, prior to the announcement.
The R.G. Barry Board of Directors unanimously approved the merger agreement and the merger, consummation of which is subject to customary closing conditions, including adoption of the merger agreement by R.G. Barry’s shareholders and the expiration of the waiting period or other approval under the Hart-Scott-Rodino Antitrust Improvements Act. Concurrently with entering into the merger agreement, Mill Road also entered into a voting agreement to vote its 9.8% stake in R.G. Barry in favor of the transaction. The merger is expected to close during the third calendar quarter of 2014, barring unforeseen circumstances and assuming that no other bidders present themselves.
“After careful consideration, the Board of Directors believes the merger serves the best interests of R.G. Barry and its shareholders,” said Lead Director David Lauer.
Greg Tunney, R.G. Barry chief executive officer and president, added, “Mill Road has a clear understanding of our vision for the business. As a privately-held company, we expect to continue to invest in the long-term growth and acquisition strategies that we believe will propel RG Barry Brands into a true leader in the accessories marketplace. We look forward to this partnership.”
Scott Scharfman, Managing Director of Mill Road added, “We have been a shareholder of R.G. Barry for many years and are pleased to increase our existing 9.8% stake in this great company. We have great confidence in the outstanding senior management team led by Greg Tunney and believe in their ability to successfully implement the long term strategic plan.”
The merger agreement permits R.G. Barry to solicit alternative acquisition proposals from third parties through May 31, 2014, and R.G. Barry intends to do so under the direction of the Board and with the assistance of its financial advisor.
R.G. Barry is being advised by Peter J. Solomon Company, L.P., its financial advisor, and Vorys, Sater, Seymour and Pease LLP, its legal counsel. Mill Road is being advised by Foley Hoag LLP, its legal counsel.
R.G. Barry also announced that its Board of Directors, as required by the merger agreement, has suspended the payment of the regular quarterly dividend so long as the merger agreement is in effect.
Third Quarter and Year-to-Date Results
The Company also reported operating results for its fiscal 2014 third quarter and nine months, ended March 29.
On a consolidated quarterly basis, the Company reported:
Net sales of $26.1 million, up slightly from $25.8 million for the third quarter of fiscal 2013;
Net earnings of $2.6 million, including a $2.4 million non-taxable gain related to the death benefit of insurance policies on the life of former Chairman, Gordon Zacks, who died Feb. 1, 2014, compared with net earnings of $1.5 million for the third quarter of fiscal 2013.
Net earnings per diluted share of $0.22, including the death benefit non-taxable gain, versus $0.13 per diluted share in the comparable period last year.
Gross profit as a percent of net sales at 44.1% compared to 45.9% one year ago; and
Selling, general and administrative (SG&A) expenses of $11.4 million, up nearly 19% from the equivalent period last year primarily as a result of the Company’s continuing investment in long-term growth initiatives and costs related to the merger transaction.
For the nine months, the Company’s consolidated results included:
A 4.5% decline in net sales to $116.0 million versus $121.5 million one year ago;
Net earnings of $13.4 million, including the aforementioned non-taxable gain of $2.4 million, compared to $13.0 million in 2013;
Net earnings per diluted share of $1.16, including the non-taxable gain, compared to $1.13 per diluted share, in the corresponding nine months of fiscal 2013;
Gross profit as a percent of net sales at 44.4% compared to 43.9% in the equivalent nine-months last year; and
Selling, general and administrative expenses up nearly 5.0% to $34.0 million from the comparable nine-month period last year, also reflects the company’s continuing investment in future growth and costs related to the merger transaction.
In the Footwear segment, quarterly net sales were $16.6 million compared with $16.4 million one year ago. Nine-month net sales of $88.5 million reflected a 6.0% year-over-year decrease in net sales compared to $94.2 million.
Quarterly gross profit as a percentage of net sales in the Footwear segment decreased by 60 basis points (bps) to 39.4%; and remained relatively flat on a year-over-year dollar basis at $6.5 million. Third quarter operating profit decreased $0.3 million, reflecting fluctuations in a broad range of expenses.
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For the nine months, Footwear segment gross profit as a percentage of net sales rose 60 bps to 41.0%, although gross profit dollars decreased 4.7% to $36.3 million versus one year ago. Nine-month operating profit in the segment decreased by $0.7 million to $21.7 million.
In the Accessories segment, quarterly net sales rose 1.2% to $9.5 million. Nine-month net sales were relatively flat versus last year at $27.5 million.
Third quarter gross profit as a percentage of net sales in the Accessories segment decreased 390 bps to 52.4% while gross profit dollars decreased $0.3 million to $5.0 million versus one year ago. Quarterly operating profit decreased by $1.6 million versus last year to $0.2 million and nine-month operating profit decreased by $3.0 million to $1.9 million.
Consolidated other income increased to $2.7 million from $0.4 million in the quarter primarily due to the non-taxable $2.4 million gain related to the death benefit of insurance policies on the life of former Chairman, Gordon Zacks, who died Feb. 1, 2014. For the nine-month period, consolidated other income increased to $3.4 million from $0.8 million one year ago.
The Company’s balance sheet as of March 29 reflected:
Cash and short-term investments of $43.1 million;
Consolidated inventory at $23.6 million; and
Net shareholders’ equity of $96.4 million, up from $85.5 million one year ago.
Greg Tunney, R.G. Barry President and Chief Executive Officer, commented, “The greatest test our business faces continues to be identifying and retaining profitable top-line growth in existing segments while adding new, category-appropriate drivers in other parts of the accessories universe. We remain committed to investing for the long-term in the people, platforms and strategies that will make that growth possible at a faster and more sustainable rate than we currently are achieving.
“In view of today’s announcement regarding the signing of a definitive merger agreement with Mill Road Capital, we will not be holding a conference call/webcast related to today’s earnings announcement,” he added.
The Company expects to file the Form 10-Q for the period ended March 29, 2014, on or about May 7, 2014.
About RG Barry
RG Barry creates and markets great accessories brands and fashionable, solution-oriented products that make life better. Our primary brands include: Dearfoams slippers dearfoams.com; baggallini handbags, totes and travel accessories baggallini.com; and Foot Petals premium insoles and comfort products footpetals.com. To learn more, visit us at rgbarry.com.
About Mill Road
Mill Road Capital is a private investment firm focused on investing in and partnering with publicly traded micro-cap companies in the U.S. and Canada. The firm has flexible, long-term capital with the ability to purchase shares in the open market, buy large block positions from existing shareholders, provide capital for growth or acquisition opportunities, or execute going-private transactions. The firm currently has over $600 million of assets under management. More information can be found at http://www.millroadcapital.com.