Warnaco to Acquire Ocean Pacific
After emerging from bankruptcy 12 years ago to ride a wave of success in the late 1990s, the Ocean Pacific Apparel Corp. is repositioning itself for the new millennium.
Several sources in the Los Angeles apparel industry’s legal and financial communities confirmed that the Irvine, Calif.–based surfwear maker has signed a letter of intent with New York–based apparel powerhouse Warnaco Group Inc. that includes a payout of $50 million plus shares in stock.
Representatives at Warnaco, as well as Op Chief Executive Officer Dick Baker, could not be reached for comment.
Sources close to Op said the investment team behind the surfwear apparel maker is ready to reap the benefits that come from rebuilding a multimillion-dollar apparel company.
Founded in 1972 by surfer Jim Jenks, Op saw sales reach the $350 million range before filing for bankruptcy in 1992.
Former Tommy Hilfiger executive Baker entered a partnership with San Francisco– based Doyle & Boissiere LLC and acquired Op from the Berkeley International Capital Corp. in 1998. As Op’s chief executive officer, Baker built the ailing label into a multi-brand company that targets product categories by age group and distribution and a full-force marketing campaign that promotes California’s coastal lifestyle.
Currently, Op’s sales volume is roughly $230 million. The company has 35 licensees in 83 countries.
Op’s apparel brands include Op, a better activewear line sold in department stores; Ocean Pacific, a sophisticated resort and casualwear collection; and Seven2, an edgy activewear apparel and accessories collection with an urban influence.
Irvine, Calif.–based Rays Apparel—which acquired the rights to produce young men’s, boys’, juniors and girls’ apparel for Op in 1994—will produce roughly $80 million in volume this year. Rays Apparel President Jim Stark said his company holds the license to produce apparel for the surfwear maker until 2006.
Sources speculate that the deal between Op and Warnaco could bring Op’s swim division in-house and eliminate the surf brand’s existing licensing agreement with Los Angeles– based swimwear manufacturer Apparel Ventures Inc., which produces juniors swimwear for the brand. Currently, the Warnaco Swimwear Inc. produces approximately 40 million swimsuits and accessories each year under the Cole of California, Anne Cole, Speedo, Nautica, Choice Calvin Klein and Michael Kors labels at facilities in Mexico and Asia.
Warnaco is a $1.4 billion apparel giant and the owner of a collection of fashionable brands and licenses, including Calvin Klein, Speedo and Chaps by Ralph Lauren. Like Op, the company has seen tough times. Weighed down by some $3 billion in debt from former Chief Executive Linda Wachner’s acquisition spree, Warnaco filed for bankruptcy protection in June 2001.
Since its reemergence from bankruptcy on Feb. 4, 2003, Warnaco’s finances have improved, allowing the company to expand.
“At quarter end, our balance sheet showed an improved cash position and a reduced inventory balance, as compared to the end of the first quarter of fiscal 2003,” said Warnaco’s president and chief executive officer, Joseph R. Gromek, in the company’s firstquarter report for the period ending April 4.
Sources say the acquisition could fill an open niche at Warnaco.
“I think Speedo is trying to get on land as sort of an out-of-the-water beach brand,” said one analyst, who asked to remain anonymous. “And Op has the design expertise and credibility in an area where Speedo is trying to go.”
Carl Steidtman, chief economist at Deloitte Research in New York, said: “Increasingly, the apparel marketplace is a consolidation of suppliers. A transaction between Warnaco and Ocean Pacific would be another data point of that trend. It reflects the consolidation taking place on the retail side. We’re slowly seeing retailers that have greater market power.”
In a recent interview with the Warnaco Swimwear Group’s Roger Williams, the swimwear executive pointed out that the apparel giant’s stock has doubled in the years following its emergence from bankruptcy, from $10 to a $19.95 closing price on July 20. “It’s public knowledge that Warnaco has cash availability,” Williams said.
Sources close to both companies said a sale is expected to go through within two weeks.
—Claudia Figueroa
