Deckers to acquire Teva from Thatcher

Deckers Outdoor Corp. has announced that it has entered into a definitive agreement to acquire the rights to Teva patents and trademarks from Teva’s inventor and founder, Mark Thatcher, just as SNEWS® first reported the company would on July 22. The agreement is expected to close by the end of 2002’s fourth quarter.

The deal to buy Thatcher out carries a value of approximately $62 million and will be paid via a combination of cash and stock. Deckers will pay cash in the amount of $43.0 million and will issue to Thatcher subordinated notes of $13.0 million, preferred stock of $5.5 million, 100,000 shares of common stock currently valued at approximately $0.3 million and options to purchase 100,000 shares of common stock, valued at approximately $0.2 million. The $13.0 million of subordinated notes will carry a coupon interest rate of 7 percent and an additional 2 percent interest, which is to be accrued and paid at the maturity date in 2008. The $5.5 million of preferred stock pays no dividends unless dividends are declared and paid on the company’s common stock, is callable by the company within the next three years at face amount plus an additional 10 percent per year and is convertible into common stock by the holder after three years, if it is still outstanding, at a conversion price which approximates the fair market value at the closing date.

Just as significant as the cash and stock buy-out deal, company insiders told SNEWS®, is the fact that the deal also gives Thatcher a seat on the company’s board.

According to a company statement, Deckers intends to finance the $43.0 million cash component of the acquisition through the use of existing cash on hand, senior debt provided by Comerica Bank and the issuance of $12 million to $14 million of senior subordinated notes to an unaffiliated third party. The senior debt provided by Comerica Bank includes a $7 million term note with two-year amortization and a $20 million revolving credit facility due in two years. The senior subordinated notes will include a 12 percent coupon interest rate and an additional 4.75 percent interest, which is to be accrued and paid at the maturity date in 2008.

Deckers has been selling the Teva line of sport sandals since 1985 under license agreements with Thatcher. Sales of Teva footwear accounted for approximately 67 percent of Deckers’ $61.2 million in total sales in 2001.

SNEWS® View: As we reported in July, Deckers CEO Doug Otto really had two choices — renegotiate the current deal with Thatcher on Thatcher’s terms, or buy Thatcher out for, shall we say, quite an amazing sum. The first option was not going to happen, according to insiders, simply because Thatcher and Otto enjoyed a less than amicable relationship. That left Otto with one choice — buy Thatcher out. Now Deckers owns the brand that defines the company and is no longer subject to the $5 million in annual minimum royalty payments or the fear of losing the rights to sell the brand — a fear that has driven all negotiations until now. Of course, the irony for Otto is that Thatcher gets to sit on the board as a result of the deal, and that, we promise you, is sure to be a seat that intends to be a thorn in Otto’s side. With Thatcher gone, the question does remain — can Teva succeed and grow without Thatcher’s direct influence. Deckers has a great team with some very enthusiastic and talented folks so the opportunity is there. Time will tell.