8-K: Hanesbrands to Sell Champion Business to Authentic Brands Group for $1.2 Billion

Hanesbrands has agreed to sell its global Champion business to Authentic Brands Group for $1.2 billion, with potential for an additional $300 million based on performance.

Summary

• Hanesbrands Inc. has entered into an agreement to sell the intellectual property and certain operating assets of its global Champion business to Authentic Brands Group for $1.2 billion.
• The deal includes a potential additional $300 million in cash consideration based on the achievement of certain performance thresholds, bringing the total potential value to $1.5 billion.
• The transaction has been approved by Hanesbrands' Board of Directors and is expected to close in the second half of 2024.
• Hanesbrands will provide transition services to Authentic, including operating the business in select regions through a transition period.
• The company expects net proceeds of approximately $900 million from the transaction, which will be used to accelerate debt reduction.
• The global Champion business generated approximately $75 million of adjusted EBITDA on a trailing 12-month basis as of the end of the first quarter 2024, net of approximately $60 million of stranded costs.
• Hanesbrands plans to remove all stranded costs within a year of the transaction closing.
• Hanesbrands will classify Champion as discontinued operations in the second quarter of 2024 and will update its full-year 2024 guidance accordingly.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the strategic benefits of the sale and the company's focus on its core business. However, there are some risks and uncertainties associated with the transaction, which temper the overall sentiment.

Positives

• The sale will allow Hanesbrands to focus on its core innerwear business and generate above-market growth.
• The transaction will enable Hanesbrands to accelerate its debt reduction and improve its financial position.
• Hanesbrands has specific plans to remove all stranded costs within a year of the transaction closing.
• The company believes it is in a stronger position to extend its leadership in innerwear and drive shareholder returns.

Negatives

• The global Champion business generated approximately $75 million of adjusted EBITDA on a trailing 12-month basis as of the end of the first quarter 2024, net of approximately $60 million of stranded costs.
• Hanesbrands will incur stranded costs of approximately $60 million, which it plans to remove within a year of the transaction closing.

Risks

• The transaction is subject to customary closing conditions and may not be completed.
• The contingent cash consideration is dependent on the achievement of certain performance thresholds and may not be fully realized.
• The company's ability to remove all stranded costs within a year of the transaction closing is not guaranteed.
• The company's future financial performance may be affected by the loss of the Champion business.

Future Outlook

Hanesbrands intends to focus on its innerwear business and generate above-market growth through product innovation and increased investment. The company also expects to accelerate debt reduction and enhance its operations and financial performance.

Management Comments

• Bill Simon, Chairman of the Board, stated that the agreement maximizes value for Champion and best positions Hanesbrands for long-term success.
• Steve Bratspies, CEO, said the transaction simplifies the business, deleverages the balance sheet, and enhances operations and financial performance.

Industry Context

This announcement reflects a trend of companies focusing on core businesses and divesting non-core assets to improve financial performance and shareholder value. The sale of Champion allows Hanesbrands to concentrate on its innerwear brands, which have shown recent growth and potential.

Comparison to Industry Standards

• The sale of Champion to Authentic Brands Group is similar to other brand acquisitions in the apparel industry, where established brands are acquired by companies specializing in brand management and licensing.
• The valuation of $1.2 billion, with a potential $300 million earn-out, is within the range of comparable transactions in the apparel and brand licensing space.
• The focus on debt reduction and core business growth is a common strategy among companies seeking to improve their financial health and market position.
• Comparable companies that have recently divested non-core assets include Adidas, which sold Reebok to Authentic Brands Group in 2021, and VF Corporation, which sold its occupational workwear business in 2021.

Stakeholder Impact

• Shareholders will benefit from the company's increased focus on its core business and accelerated debt reduction.
• Employees of the Champion business will transition to Authentic Brands Group.
• Customers of the Champion business will continue to have access to the brand through Authentic Brands Group.
• Employees of Hanesbrands will see a shift in focus to the innerwear business.

Next Steps

• Hanesbrands will provide transition services to Authentic, including operating the business in select regions through a transition period.
• Hanesbrands will use the net proceeds from the transaction to accelerate its reduction of debt.
• Hanesbrands will classify Champion as discontinued operations in the second quarter of 2024 and update its full-year 2024 guidance.
• Hanesbrands will focus on extending its leadership position in the innerwear category and generating above-market growth.

Key Dates

Keywords

Hanesbrands, Authentic Brands Group, Champion, sale, acquisition, apparel, innerwear, debt reduction, EBITDA, strategic options