Kathmandu taps $90 million from investors for Rip Curl acquisition

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Kathmandu taps $90 million from investors for Rip Curl acquisition

By Dominic Powell

Outdoor clothing retailer Kathmandu has completed the institutional component of its $NZ145 million ($135.4 million) capital raising to fund the acquisition of surfwear brand Rip Curl.

The company raised slightly less than it had aimed for, with 88 per cent of shares on offer bought and 92 per cent eligible institutional shareholders taking up their full stake.

Kathmandu has completed the institutional component of its capital raising.

Kathmandu has completed the institutional component of its capital raising.

Investors were offered one share for every four they already owned for $NZ2.55 per share, a 19.6 per cent discount on Kathmandu’s current $NZ3.05 share price.

This resulted in the company raising about $NZ96 million ($89.5 million), short of the $NZ110 million it had aimed to raise through the institutional component.

Kathmandu is now looking to retail investors to raise the remaining $NZ49 million, which will take place between October 4 and October  21.

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Kathmandu shares remain in a trading halt following the acquisition announcement. They will resume trading on Friday morning.

Capital raised through the offer, along with $NZ231 million in debt funding, will pay for the listed retailer's $350 million purchase of iconic Australian surfwear brand Rip Curl it announced on Tuesday.

It will also fund the placement of $NZ32 million in Kathmandu shares to Rip Curl's chief executive Michael Daly, and founders Brian Singer and Doug Warbrick.

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A merger of the two brands is predicted to boost Kathmandu's revenues to more than $1 billion and increase its earnings by 10 per cent to about $NZ151 million.

It will also give the companies a combined retail footprint of 341 owned stores, 254 licensed stores and more than 7300 wholesale locations.

What Kathmandu is doing is building a house of iconic brands, so having a cultural fit in something that they acquire is critical.

Canaccord Genuity analyst Benn Skender

It is these wholesale opportunities analysts are picking to be the make or break for the companies' integration, with Macquarie analysts saying Kathmandu would "need to execute" smart deals with Rip Curl's existing wholesale partners.

Canaccord Genuity analyst Benn Skender also highlighted the wholesaling potential, saying the company's exposure to broader channels through the acquisition was a "huge plus".

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"It's something that could give Kathmandu better traction with their own brand over time in offshore markets," he said.

The tie-up will also reduce Kathmandu's reliance on the colder months by opening the brand to the summer-aligned surfwear market which will likely generate around 26 per cent of Kathmandu's revenue, Mr Skender said.

But it's the two brands' cultural alignment which Mr Skender believes is a "major reason" the acquisition went ahead.

"I don't think this is an acquisition where it's been made on the merits of [earnings per share] accretion or of cost savings," he said.

"What Kathmandu is doing is building a house of iconic brands, so having a cultural fit in something that they acquire is critical to delivering on that."

Surfing world questions deal

But beyond the world of sales and earnings, surfing enthusiasts are questioning what a Kathmandu-owned Rip Curl will mean for the world of pro surfing.

The Torquay-based company is a staunch supporter of pro surfers and surfing events, including its Rip Curl Pro and GromSearch. It also sponsored numerous prominent Aussie surfers including Mick Fanning and Nikki Van Dijk.

In an article published on Wednesday, renowned surf writer Nick Carroll questioned the likelihood of Kathmandu continuing to support Australia's surfing scene to the same extent, saying the company has minimal record of athlete support and event holding.

Rip Curl sponsors the likes of Mick Fanning.

Rip Curl sponsors the likes of Mick Fanning. Credit: WSL

"What made passionate sense to the founders makes far less sense to people who’ve seen actual money made without the need for such expenditure," he wrote.

"Kathmandu won’t be wanting to pull the rug out from under this stuff right away. It’d be a clumsy call in the first year of ownership. But down the track?"

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