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Posted on May 2nd, 2011 by Kyle

Some interesting/crazy news from the Wall Street Journal and the business side of the Industry today. The french retail group PPR has acquired Volcom…for $608 million. I really don’t know what to think of this. Volcom has always been a loyalist company, their management has stayed very true to their core throughout the years and have built a very solid company in doing so. I mean how many other companies that you know of had $323 million in sales last year, and did it by preaching their “Youth against establishment” mantra. But who knows now. PPR owns other companies like Puma and Gucci. WTF? I don’t know, Richard Woolcott and the Volcom team got the company to where they are now by being connected with the movement of the action sports industry…..Gucci?? Deary me. I really don’t know much about PPR, we’ll see what happens I guess.

The acquisition comes in the midst of a major shift for PPR from a low-margin group of retail chains to a constellation of high-profile international brands, including Gucci and Puma. PPR has sold off retail networks such as the Conforama furniture stores to invest in profitable brands. Volcom, one of those brands, sells skateboarding, snowboarding and surfing apparel and goes by the motto “youth against establishment.”

“Our aim is to be a worldwide actor in sports and lifestyle,” PPR Chief Executive François-Henri Pinault said. “We will ensure Volcom reaches the next stages in its development.”

The potential for synergies between PPR’s Puma and Volcom is high. The majority of Puma’s business is shoes, and Volcom only has a small footwear business. PPR plans on amping up Volcom’s distribution, in part by opening stores. In addition, PPR expects Volcom to tap into Puma’s Asian manufacturing.

“Given the runaway ascent in production costs, anytime a brand portfolio such as PPR could combine two business units to gain scale, it’s good,” Wall Street Strategies analyst Brian Sozzi wrote in a research note.

With the boost from Volcom, PPR expects its sports-lifestyle division—which will include Volcom as well as Puma and golf manufacturer Cobra—to generate five billion euros ($7.41 billion) in sales by 2015, PPR’s chief financial officer said Monday.

Last year, the division turned in €2.7 billion in sales; separately, Volcom had sales of $323 million. Volcom, like Puma, was hit hard by the consumer-spending slump during the economic crisis, and its operating margin hasn’t yet recovered.

PPR’s disposals have outweighed acquisitions in recent years. In addition to Conforama, PPR has sold businesses such as the Printemps department- store chain and spun off CFAO, a profitable African distribution company, netting the company billions of euros. That has increased expectations for acquisitions to bolster Puma and complement the brands in its luxury division, which include Gucci, Yves Saint Laurent and Balenciaga.

However, Mr. Pinault has repeated that no target would be bigger than Puma, limiting the potential for a major purchase. In 2007, PPR bought a majority stake in Puma, the third-biggest sportswear brand after Nike and Adidas, valuing the company at €5.3 billion.

PPR is offering $24.50 a Volcom share, a 37% premium to its three-month average. Volcom’s directors have agreed to sell their 14.4% stake to PPR, and they will remain with the company. PPR expects the deal to close by September.

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