After Levi Strauss IPO, Will Investors Gobble Up Lee and Wrangler Brands?

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The market for initial public offerings has been successful for a number of companies coming public in 2019, but the performance has been mixed among the largest IPOs. The status of the Levi Strauss & Co. (NYSE: LEVI) IPO at $17.00 per share has been a success, with its shares rising 35% out of the gate in March and last seen trading at about $22.50.

It turns out that the investing world of blue jeans, denim and casual wear is about to get a new company that can be invested in as close to a pure-play on denim and related clothing. VF Corp. (NYSE: VFC) has been a strong company in apparel, footwear and accessories for years. Now it has approved the previously announced separation of its VF Jeanswear organization.

The new company will be independent and publicly traded as Kontoor Brands under the KTB stock ticker on the New York Stock Exchange. Kontoor’s internal brands will include Wrangler and Lee as the famous jeans and related apparel and accessories brands. Kontoor also will include the Rock & Republic brand and the VF Outlet business.

VF’s spin-off will be 100% of the Kontoor shares to existing VF common stockholders. Those VF holders who hold shares at the close of business on the record date of May 10, 2019, will be entitled to receive one share of Kontoor for every seven shares of VF Corp. That distribution is currently expected to be completed after the market close on May 22, 2019.

There may be some issues around the number of shares based on fractional shares, as the VF press release indicated that fractional shares of Kontoor Brands will not be distributed. Those fractional shares will be sold in the open market and the appropriate cash payment for each shareholder’s fractional share will be distributed pro rata.

Wall Street has been in the mood of asking larger companies to focus on their core businesses and asking larger companies to unlock value or to allow the investor pool to be able to invest in individual units rather than large jumbled conglomerated or amalgamated structures.

Even after breaking out the denim and related casual apparel and accessories here, VF Corp. will still be a very diverse amalgamated version of apparel and the related areas that has been assembled via brand launches and acquisitions. It currently has four segments: Outdoor & Action Sports, Jeanswear, Imagewear and Other. Its Outdoor unit includes brands such as North Face, Vans, Timberland, JanSport, Eastpak and Eagle Creek. VF Corp.’s Imagewear unit includes Red Kap, Bulwark, Horace Small, Dickies, Workrite, Kodiak, Terra and Walls brands.

VF Corp. was last seen trading at $93.67 a share, in a 52-week range of $67.18 to $97.00 and with a Refinitiv consensus target price of $96.30. Even with a slight pullback, its shares were up about 31% so far in 2019 alone.

It is impossible to know what the market capitalization will be for the Kontoor Brands shares until investors have broken out those fractional shares and once the price on the future spin-off date is known. VF Corp. has a $37 billion market value, so breaking out the shares without any adjustments and assuming a static stock until the launch date would generate an implied market cap of just over $5 billion.


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