Naked Brand Group Inc (NASDAQ:NAKD), the distributor of intimate innerwear products for both men and women, has surprised us recently. We did our last piece on the company in April, wherein we did a very good synthesis of its business and its potential. The most important information contained in that article could be resumed in this paragraph:
“Naked Brand had entered into a Letter of Intent regarding the merger with Bendon Limited, a worldwide leader in intimate apparel. The deal is a key catalyst for Naked Brand and appears as a perfect fit, aligning themselves with one of the major players of the industry will help ensure the brand remains stable from a capital perspective. In January, Naked issued 119 million shares to Bendon shareholders under the terms of the Letter Of Intent.” Source
Consolidation phase, or maybe a merger. Interesting? In this new article, we will deliver the latest news about this business combination. Have a look at the price action first.
For those who need to understand the business of NAKD, we encourage you to read the previous piece. The industry and the company’s value proposition is assessed there in a befitting manner. In this article, we will only focus on the transaction between the company and Bendon Limited and the most recent quarterly earnings release. On May 25, 2017, it was put out that NAKD will merge with privately held Bendon Limited, and the NAKD shareholders will receive approximately 7% of the outstanding ordinary shares of the combined company. Carole Hochman, Naked’s CEO, explained:
“We are pleased to have reached a definitive agreement with Bendon, which is the culmination of much hard work. We believe that this merger is structured to benefit our shareholders as well as the go-forward business. We look forward to closing this transaction in due course.” Source
The merger is subject to approval by Naked’s stockholders and the listing of the resulting business combination on Nasdaq, or the NYSE, and other customary conditions. Duane Morris LLP is serving as legal counsel to Naked. Graubard Miller, Russell McVeagh, and Wynn Williams are serving as legal counsel to Bendon, and Holdco. The market did not appreciate the transaction at all; the share price went from trading close to $3 to $2.05 as of May 25, 2017.
It is difficult to estimate whether the merger benefitted Naked’s stockholders, since the acquiring company is private. The fact that Naked’s stockholders will only receive 7% of the resulting company was for sure one of the main reasons to justify the sell of. However, without assessing all the information, the size of the company seems very big, and it employs 700 people. This is from the same press release:
“Bendon products are distributed through over 4,000 doors across 43 countries as well as through a growing network of 60 company-owned Bendon retail and outlet stores in Australia, New Zealand and Ireland. Bendon’s global supply chain is one of its strongest assets, controlling sourcing, manufacturing and production at over 30 partner facilities across Asia. Bendon has more than 700 staff at offices and stores in Auckland, Sydney, New York, London and Hong Kong and is poised for continued meaningful growth as it opens additional retail stores and expands its current portfolio of products.” Source
Additionally, in the last 10-K of NAKD:
“We currently employ fourteen full-time employees, of which are thirteen are employed in the United States and one is employed in Canada.” Source
On April 27, 2017, the market received financial figures for its fourth quarter and fiscal year ended January 31, 2017. The most relevant numbers of the last quarter were the following:
- Net sales increased by 21.9% to $0.55 million
- Gross margin was 49.3% for the fourth quarter of fiscal 2017, compared to 39.0% for the same period of fiscal 2016
- Net loss was $2.6 million, or $0.42 per share, compared to a net loss of $10.6 million, or $2.94 per share.
Additionally, for the fiscal year 2016, sales increased by 32.6% and gross margin was 20.5% as compared to that of the previous period, which was 7.1%. The results were as expected and they did not cause any reaction in the share price. In our opinion, the market was anxiously looking at the merger with Bendon. Sometimes, companies increase their financial figures in an M&A negotiation in order to increase their sale price. That is the reason to explain that the outstanding financial figures did not have a large reaction.
Naked Brand finally put out that it will be bought out by a big privately held company. However, shareholders may receive only 7% of the new business combination if the merger closes. The merger needs to be voted on and it is expected to be completed by the end of October 2017. Hence, the transaction is not yet closed. We believe like other market participants on Yahoo Finance Conversations and on iHub that the current price may be an opportunity. The share price lost about 30% on the back of the announcement. Try to be alert on this one, since NAKD may release more information about the new merger company, and the share price may go up a little bit. We will be updating our subscribers as soon as we know more. For the latest updates on NAKD, sign up below!
Disclosure: We have no position in NAKD and have not been compensated for this article.