California Apparel News

Los Angeles’ Guez Brothers are letting the public in on their act.

After spending more than 30 years setting up private denim companies that have soared, stumbled and then soared again, Paul Guez is turning one of his newest blue jeans labels, Antik Denim, into a public company. Meanwhile, his brother Gerard, the chairman of NASDAQ-listed Tarrant Apparel Group, has signed a letter of intent to allow a Florida-based company to buy all the shares of a Tarrant subsidiary and make it a public company.

The Guez brothers are doing this with the help of Keating Investments LLC in Greenwood Village, Colo., which specializes in reverse mergers.

Under each deal, a shell corporation will buy all the shares of the other company. Nevada-based Marine Jet Technology Corp., which had been a fully operating publicly traded company until early this year, will acquire Antik Denim, a high-end denim label started last year by Paul Guez’s company, Blue Concept Inc. Antik Denim is designed by the French duo Alex Caugant and Philippe Naouri. Separately, Qorus.com Inc. will acquire all the shares of Private Brands Inc., the Tarrant subsidiary that owns or controls the distribution of branded apparel lines including American Rag Cie and licenses from pop singers Jessica Simpson and Beyonceacute; Knowles.

Marine Jet Technology and Qorus share the same president, Kevin Keating, whose son, Timothy, is president of Keating Investments. The elder Keating said he is not affiliated with Keating Investments.

“It’s a great situation for the company to become public,” said Paul Guez, who founded Sasson Jeans in the 1970s and is a major shareholder in the publicly traded Innovo Group Inc., which designs and markets Joe’s Jeans out of its Commerce, Calif., headquarters. “It is the only way to grow and do what you want to do fast.”

Gerard Guez said he opted for the reverse merger over a direct spinoff of Private Brands because a direct spinoff would imply that all shares in the new company would be distributed. “I don’t think that’s in the best interest,” he said. “I could not find a better way [than a reverse merger] to give our investors and our shareholders a way to participate in the branding valuations.”

A reverse merger is a little complicated and much like a guppy swallowing a whale. It is a way for a private company to become a publicly traded company without the scrutiny, expense and time needed for an initial public stock offering. But unlike an IPO, the process does not bring in an initial flush of capital for the newly public company.

In a reverse merger, a dormant publicly traded company (called a shell company) offers to buy an active private company. The public company issues enough stock to the private company so that the private company ends up owning at least 90 percent of the dormant public company. This makes the private company a publicly traded company.

In the case of Antik Denim, Marine Jet Technology will acquire all the outstanding interests in Antik from Antik’s existing members. In exchange, Marine Jet will issue shares of its common stock so that Antik’s members own 95.8 percent of Marine Jet. Then the new publicly traded company will be called Antik Denim.

With Private Brands, Qorus shareholders will hold 3 percent of the combined company. The remaining 97 percent will belong to Tarrant. The management of Qorus later will resign, and Private Brands will become a survivor company and have a new ticker symbol. Keating said Private Brands will trade initially on the Over The Counter Bulletin Board.

Gerard Guez said he expects the new company, which will be called Private Brands, to have five board members—three external and two internal—with himself serving as chairman. He added that Tarrant will eventually own 70 percent to 75 percent of the new public company. The remaining shares will be open to the public, he said.

Keating said the Antik deal will close as early as May 1 and that the Private Brands transaction will be completed by June 30.

Antik Denim is just one of several labels that Paul Guez has launched in recent years through Blue Concept. Under the Blue Concept umbrella, he and his designers have created several high-end lines, including Yanuk, Taverniti So, U Denim, Grail, Duarte Jeans and Elvis. Recently, Yanuk got a new designer; Ya-el Torbati left, and Benjamin Taverniti signed on.

Antik Denim was launched in September 2004 as a blue jeans line with an antique Westernwear influence. The line is sold in upscale stores such as Neiman Marcus, Nordstrom, Saks Fifth Avenue, Barneys New York and Bergdorf Goodman. The jeans, manufactured in Los Angeles, feature several hand-sewn details and embroidered embellishments.

Antik Denim, which includes T-shirts and jackets, wholesales from $98 to $150. According to papers filed with the U.S. Securities and Exchange Commission, Antik Denim’s net sales from September to December 2004 were $365,000.

Paul Guez—who with his other brother, Hubert, co-owns Azteca Production International, a denim factory in Mexico—said he did not know if his other denim labels will eventually go public, too. “We chose Antik because it is very hot, very new and doesn’t have much of a past,” he said. “Eventually, we will think about this for our other labels.”

Tarrant is trying to grab back the private-label business it had in 1998, when, according to Gerard Guez, it had $378 million in private-label sales. Sales shrank to $155.5 million in 2004, according to SEC filings.

Gerard Guez said he expects to continue building the branded platform at Private Brands. The subsidiary presently designs and manufactures American Rag Cie merchandise, sold exclusively at Federated Department Stores Inc.’s Macy’s; Alain Weiz plus-sized apparel, distributed exclusively by Dillard’s Inc.; and the Gear 7 collection for boys and young men, distributed exclusively through Sears Holdings Corp.’s Kmart. The collections licensed with Simpson and Knowles will begin shipping in the third quarter, Gerard Guez said.

For now, Gerard Guez said he is comfortable with the pace of signing one or two new deals each year for the next three years. Afterwards, he said, “let all the brands grow.”