Iconix completes Umbro´s 225 million dollars acquisition

The clothing licensing company confirmed earlier this week the completion of its acquisition of Umbro brand from Nike for 225 million dollars. Umbro will add to Iconix Brand Group Inc.´s 29 consumer brands, which include Candie's,

Danskin and Badgley Mischka.

The transaction with Nike was announced in October. Nike had acquired Umbro in 2008 for 582 million dollars. The Beaverton, Oregon, company announced in May that it planned to sell the Umbro and Cole Haan brands to cut costs and focus on its namesake Nike brand, along with Jordan, Converse and Hurley. This is Iconix's second purchase from Nike. The New York company bought the athletic clothing brand Starter in 2007.

Now, Iconix intends to fund the acquisition with the recently issued Fixed Rate Notes worth 600 million dollars. “Iconix has a proven record of growth through brand acquisitions, joint ventures or partnerships. The addition of Umbro is expected to further strengthen its diversified portfolio. Iconix completed its fourth international joint venture with Reliance Brands Limited in India during the second quarter of 2012, preceded by joint ventures in China, Europe and Latin America,” stressed analysts at Zacks Equity Analysis.

Once the Umbro acquisition was finalized, the company's athletic brands are expected to contribute around $2.5 billion to overall sales of approximately 13 billion dollars, according to market insiders. “On the other hand, by selling off its Umbro brand, Nike intends to reduce costs and focus on its NIKE, Jordan, Converse and Hurley brands. The company previously entered into an agreement to divest its Cole Haan brand to Apax Partners for 570 million dollars. The Cole Haan acquisition is expected to be completed by early 2013,” summed up analysts at Zacks.

In a note issued on Tuesday, Zacks Equity Analysis team commented: “We believe Iconix's strategic acquisitions and consistent expansion of licensing agreements will expand its global market share. Iconix is also increasing its penetration in the emerging markets where the middle class population is on the rise and consumer spending is positive. We also expect the new direct-to-retail agreements to boost the company's top line in the upcoming quarters.” On the other hand, we appreciate better-than-expected first-quarter 2013 results achieved by Nike. However, higher input costs and a shift in mix towards low-margin businesses is hurting the company's gross margin. In addition, intense competition from peer companies and sluggish spending is expected to weaken the company's performance in the upcoming quarters.

Iconix Brand Group carries a Zacks #3 Rank (short-term 'Hold' rating) while its peer Nike Inc. carries a Zacks #2 Rank (short-term 'Buy' rating). Longer-term, we are maintaining our Neutral recommendation on both Iconix Brand Group and Nike Inc.