EXHIBIT (b)(3)
Strictly Confidential
Presentation to the
Independent Committee of the
Board of Directors of:
[LOGO OF ST. JOHN KNITS, INC. APPEARS HERE]
February 2, 1999
Table of Contents
A. Overview of Proposed Transaction
B. Valuation Analysis
Overview of Proposed Transaction
Overview of Proposed Transaction
Key Financial Terms
Structure: Reorganization Merger and Acquisition Merger (see page
A-2 for details)
Consideration: Total Consideration = $30.00 per share (premium of
36.8%)/(a)/
Cash/Stock Election:
- Aggregate number of shares to be exchanged for
Parent Common Stock will be 457,000 shares
(approximately 3.0%)
- Aggregate number of shares to be exchanged for cash
will be 97.0%
Based on the number of shares of Parent Common Stock
that the shareholders elect to receive, certain
shareholders may be subject to pro ration amongst the
stock and cash component. As such, assuming full pro
ration, each shareholder will receive $29.10 in cash
and $0.90 in Parent Common Stock
Tax Treatment: Taxable to shareholders
Accounting Treatment: Recapitalization accounting
- -----------------------
(a) Represents an implied premium to the pre-announcement closing SJK stock
price of $21.94 on December 8, 1998.
A-1
Overview of Proposed Transaction
Summary of Structure
[CHART DEPICTING STRUCTURE OF PROPOSED TRANSACTION APPEARS HERE IN THE PRINTED
MATERIAL]
1. St. John Knits, Inc., a California corporation ("Company"), forms a new
subsidiary, St. John Knits International, Inc., a Delaware and Barbados
corporation ("Parent")
2. Parent forms a new subsidiary, SJK Acquisition, Inc., a California
corporation ("Merger Sub")
3. Merger Sub merges with and into Company, with Company being the surviving
corporation. Each share of Company Common Stock is converted into one share
of Parent Common Stock, resulting in Company becoming a wholly owned
subsidiary of Parent
4. The Gray Family exchanges all of their equity interests in the Company for
cash and equity interests in Vestar/Gray Investors, LLC ("Vestar/Gray")
(approximately 15.9%)
5. Pearl Acquisition Corp., a Delaware corporation ("Acquisition"), a newly
formed corporation owned by Vestar/Gray merges with and into Parent, with
Parent being the surviving corporation. Each holder of Parent Common Stock
(formerly Company Common Stock) has the right to elect to retain Parent
Common Stock or to receive cash, subject to pro ration
A-2
Overview of Proposed Transaction
Proposed Structure and Financing - Sources and Uses/(a)/
(Dollars in millions, except per share amounts)
Total Debt $315.0
1998 EBITDA $65.4
Total Debt/1998 EBITDA 4.8x
LTM 1/99E EBITDA/(b)/ $60.7
Total Debt/LTM 1/99E EBITDA 5.2x
1999E EBITDA/(c)/ $71.6
Total Debt/1999E EBITDA 4.4x
Total Equity $196.7
Uses:
- ----
Purchase Equity (17.4 mm diluted shares @ $30.00) $521.9
Transaction Expenses 20.0
------
Total Uses $541.9
======
Sources:
- -------
Excess Cash $ 20.0 % of Total
Option Proceeds 10.2 Capitalization/(d)/
-------------------
Senior Bank Debt (2 tranches) 155.0 30.3%
Senior Subordinated Debentures 160.0 31.3%
Public Equity Rollover (0.46 mm shares @ $30.00) 13.7 2.7%
Gray Family Equity Rollover (0.97 mm shares @ $30.00) 29.1 5.7%
Vestar Equity Investment (5.00 mm shares @ $30.00) 150.0 29.3%
New Management Equity Investment (0.13 mm shares
@ $30.00)/(e)/ 3.9 0.8%
------
Total Sources $541.9
======
- --------------------------------
(a) Based on sources and uses schedule and on equity ownership schedule as
provided by Vestar on 2/1/99.
(b) As per discussions with SJK Management on 1/26/99.
(c) Based on Company budget dated 12/28/98.
(d) Reflects total capitalization of $511.7 mm.
(e) Represents amount which will be funded in part with a Management loan
and/or will be reduced and augmented with an option program to achieve
desired Management ownership level.
A-3
Overview of Proposed Transaction
Proposed Structure and Financing (cont'd)/(a)/
Equity Investment
- -----------------
- Vestar to invest $150.0 million of equity for a 70.5% stake in the
recapitalized company on a diluted basis, or 76.3% on primary basis
- Purchase 97.0% of the outstanding publicly-held common stock; the 3.0% of
the then outstanding common stock retained by the current public
stockholders will represent approximately 6.4% of the pro forma common
equity on a diluted basis, or 7.0% on a primary basis
- The Gray Family will sell shares and options into the transaction
sufficient to generate pretax cash proceeds of $17.0 million (approximately
1/3 of their ownership)
- Vestar investment and Gray Family rollover will be invested on a "heads
up" or same dollar basis, (i.e., each dollar buys same amount of equity),
therefore the Gray Family, management and directors will own approximately
23.1% of the recapitalized company on a diluted basis, or 16.8% on a
primary basis
Additional Equity Terms
- -----------------------
- - In addition to their rollover, the Gray Family will receive stock options
for an additional 5% (on a diluted basis), to be vested over three years
based on the Vestar equity achieving a 20% IRR
- - Vestar will cause the Company to make available 2% of the primary shares
to the non-Gray Family members of the Company's management team for
purchase at Vestar's buy-in-price, which purchase may be financed with
loans where appropriate
- - In addition, Vestar will cause the Company to grant an additional 2.5% in
options (on a diluted basis) to the management team, which options should
vest over five years and be based, at least in part, on the Company's
performance
- - Vestar will cause the Company to provide a liquidity mechanism for Mr.
Gray's equity ownership (subject to any credit agreement restrictions) such
that upon his ceasing to serve as the Company's CEO he may, at his option,
cause the Company to repurchase up to $5 million per year of his stock
Management/Board
- ----------------
- - Vestar currently has no written agreement with Mr. Gray
- - Vestar will control the board, Mr. Gray will remain CEO for the
foreseeable future
- ---------------------------
(a) Based on sources and uses schedule and on equity ownership schedule as
provided by Vestar on 2/1/99.
A-4
Overview of Proposed Transaction
Proposed Structure and Financing - Proposed Economic Structure/(a)/
(Shares and dollars in thousands)
Offer Price Per Share: $ 30.00
Current
Shares/ %
Options Owned
------- ------
Gray Family 1,666 9.6%
Mgmt 360 2.1%
Public 15,370 88.4%
Vestar -- --
------- ------
Total 17,396 100.0%
======= ======
Less: Equals: Plus: Equals: Plus: Equals:
Shares/ Shares/ New Pro Forma New Pro Forma
Options Options Shares Primary % Options Diluted %
Sold Rolled Bought Shares Owned Granted Shares Owned
-------- ------- ------ --------- ------ ------- --------- -------
Gray Family (697) 969 -- 969 14.8% 354 1,323 18.7%
Mgmt (360) -- 131 131 2.0% 177 308 4.4%
Public (14,914) 456 -- 457 7.0% -- 457 6.4%
Vestar -- -- 5,000 5,000 76.3% -- 5,000 70.5%
-------- ------- ------ --------- ------ ------- --------- -------
Total (15,970) 1,425 5,131 6,557 100.0% 532 7,088 100.0%
======== ======= ====== ========= ====== ======= ========= =======
Gross Net
Value of Value of
Shares/ Shares/ Value of Value of
Options Options Shares Shares
Sold Sold Rolled Bought
---------- ---------- -------- ---------
Gray Family ($20,910) ($17,000) $ 29,069 --
Mgmt ( 10,794) (4,519) -- $ 3,934
Public (447,410) (447,410) 13,701 --
Vestar -- -- -- 149,995
--------- --------- -------- --------
Total ($479,114) ($468,929) $ 42,770 $153,929
========= ========= ======== ========
- ----------------------------------------
(a) Based on equity ownership schedule as provided by Vestar on 2/1/99.
A-5
Overview of Proposed Transaction
Implied Multiples
(Dollars in millions, except per share amounts)
Transaction Value
- --------------------------------------------
Offer Price $30.00
52-Week High $47.75
52-Week Low $13.25
Diluted Shares Outstanding (mm) 17.4
Offer Value $521.9
Plus: Total Debt/(a)/ 0.0
Plus: Minority Interest 0.7
Less: Cash/(a)/ (20.0)
Less: Option Proceeds/(a)/ (10.2)
------
Transaction Value $492.3
======
Implied Multiples
---------------------------------------------------------------------------------------------------
Transaction Value as a Multiple of:
------------------------------------------------- Offer Price as a P/E to 5-Year
Year Revenues EBITDA EBIT Multiple of EPS Growth Rate
- -------- ---------------- --------------- ----------- ---------------- -------------
FY1998A/(b)/ 1.75x 7.5x 9.1x 15.5x 1.61x
LTM 1/1999E/(c)/ 1.73 8.1 10.0 17.1 1.79
FY1999E/(d)/ 1.57 6.9 8.4 14.6 1.52
Financial Results and Estimates
------------------------------------------------ 5-Year EPS
Year Revenues EBITDA EBIT Diluted EPS Growth Rate (e)
- -------- ---------------- --------------- ----------- ---------------- ----------------
FY1998A/(b)/ $282.0 $65.4 $54.1 $1.94 9.6%
LTM 1/1999E/(c)/ 285.4 60.7 49.1 1.75/(d)/
FY1999E/(d)/ 314.2 71.6 58.4 2.05
- ---------------------------------
Note: Fiscal year ends in the beginning of November.
(a) Based on Vestar estimates for LTM 1/99E.
(b) 1998 figures provided in Company's audited Consolidated Financial Statements
as of November 1, 1998.
(c) As per discussions with SJK Management on 1/26/99.
(d) Based on Company budget dated 12/28/98.
(e) 5-year estimated EPS growth rate based on 5-year EBIT CAGR from Company
projections dated 1/8/99.
A-6
Overview of Proposed Transaction
Implied Premium Analysis and Trading Range
Implied Premium/(Discount) to Vestar Offer
SJK --------------------------------------------------
Time Frame/(a)/ Share Price Initial $28.00 Offer Current $30.00 Offer
--------------- ----------- -------------------- --------------------
December 8, 1998/(b)/ $21.94 27.6% 36.8%
1 Month Average $19.59 43.0% 53.2%
3 Months Average $17.72 58.0% 69.3%
6 Months Average $25.50 9.8% 17.7%
1 Year Average $33.94 (17.5%) (11.6%)
52-Week High $47.75 (41.4%) (37.2%)
52-Week Low $13.25 111.3% 126.4%
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE GRAPH IN THE PRINTED MATERIAL]
Post-Announcement Trading Range: 12/9/98 - 2/1/99
--------------------------------------------------
12/9/98 12/16/98 12/23/98 12/31/98 1/8/99 1/15/99 1/25/99 2/1/99
-------- --------- --------- --------- ------- -------- -------- -------
Low: $26.63 $26.00 $25.88 $25.88 $26.25 $26.13 $26.50 $26.38
High: $27.94 $26.31 $26.00 $26.00 $26.50 $26.63 $26.94 $26.55
Close: $26.75 $26.06 $26.00 $26.00 $26.50 $26.56 $26.81 $26.53
Vestar current offer price = $30.00
Vestar initial offer price = $28.00
- ------------------------------------
(a) Based on daily closing prices for the specified period ending December 8,
1998.
(b) Last closing price before the Vestar initial offer of $28.00/share proposed
on December 8, 1998.
A-7
Valuation Analysis
Valuation Analysis
Trading Performance Last Twelve Months
[GRAPH SHOWING THE HISTORICAL TRADING PRICE FOR THE LAST TWELVE-MONTH PERIOD
COMMENCING ON 1/26/98 AND ENDING ON 2/1/99, WITH DESCRIPTION OF SPECIFIC EVENTS
APPEARS HERE]
B-1
Valuation Analysis
Stock Price Performance: 1/31/97 - 1/29/99
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE GRAPH IN THE PRINTED MATERIAL]
Stock Price Performance
-----------------------
St. John Knits S&P 400 Branded Apparel Composite/(a)/
--------------- -------- -------------------------------
1/31/97 100.00% 100.00% 100.00%
4/14/97 93.41% 94.59% 105.00%
6/25/97 110.99% 113.21% 102.50%
9/5/97 96.84% 118.29% 104.50%
11/18/97 85.44% 118.84% 99.80%
1/30/98 86.26% 124.13% 95.00%
4/13/98 103.02% 138.56% 113.10%
6/24/98 87.64% 143.43% 121.90%
9/4/98 40.52% 126.30% 75.80%
11/17/98 39.15% 147.06% 87.50%
1/29/99 58.24% 168.11% 109.90%
- ----------------------
(a) Branded Apparel Composite includes Gucci Group, Jones Apparel Group, Liz
Claiborne, Nautica Enterprises, Polo Ralph Lauren and Tommy Hilfiger.
B-2
Valuation Analysis
Historical Financial Summary/(a)(b)/
(Dollars in millions, except per share data)
[THE FOLLOWING TABLES WERE DEPICTED AS BAR GRAPHS IN THE PRINTED MATERIAL]
Sales (Growth %)
----------------
FY1995 FY1996 FY1997 FY1998 LTM 1/1999E/(c)/
------ ------ ------ ------ ----------------
$161.8 $203.0 $242.1 $282.0 $285.4
26.4% 25.4% 19.3% 16.5% 12.1%
Gross Profit (Margin %)
-----------------------
FY1995 FY1996 FY1997 FY1998 LTM 1/1999E/(c)/
- ------ ------ ------ ------ ----------------
$87.5 $114.1 $142.7 $161.1 $160.4
54.1% 56.2% 58.9% 57.1% 56.2%
EBITDA (Margin %)
-----------------
FY1995 FY1996 FY1997 FY1998 LTM 1/1999E/(c)/
- --------- ------- ------- ------- -----------------
$38.4 $52.6 $67.0 $65.4 $60.7
23.7% 25.9% 27.7% 23.2% 21.3%
EPS (Growth %)
--------------
FY1995 FY1996 FY1997 FY1998 LTM 1/1999E/(d)/
- ------- ------ ------ ------ ----------------
$1.19 $1.59 $2.01 $1.94 $ 1.75
30.8% 33.6% 26.4% (3.5%) (17.5%)
- -----------------------------
Note: Fiscal year ends in the beginning of November.
(a) 1995-1997 figures based on SJK Form 10-K dated November 2, 1997.
(b) 1998 figures provided in Company's audited Consolidated Financial
Statements as of November 1, 1998.
(c) As per discussions with SJK Management on 1/26/99.
(d) Based on Company budget dated 12/28/98.
B-3
Valuation Analysis
Summary of Financial Projections -- Key Assumptions
Fiscal Year Ended November 1,
------------------------------------------------------------------
1998A 1999E 2000E 2001E 2002E 2003E
------ --------- --------- --------- --------- ---------
Net Sales Growth
Management Case 16.5% 11.4% 8.0% 8.0% 8.0% 8.0%
Vestar Case 16.5 8.2 7.4 7.6 6.9 7.1
Gross Margin
Management Case 57.1% 56.6% 57.0% 57.5% 57.5% 57.5%
Vestar Case 57.1 56.7 56.7 56.7 56.6 56.6
SG&A Expenses (% of Sales)
Management Case 38.0% 38.0% 37.5% 37.5% 37.5% 37.5%
Vestar Case 38.0 37.9 37.8 37.6 37.6 37.6
EBITDA Margin
Management Case 23.2% 22.8% 23.7% 24.1% 23.9% 23.7%
Vestar Case 23.2 23.1 23.3 23.4 23.4 23.3
EBIT Margin
Management Case 19.2% 18.6% 19.5% 20.0% 20.0% 20.0%
Vestar Case 19.2 18.8 18.9 19.1 19.0 19.0
Effective Tax Rate/(a)(b)/ 39.7% 40.7% 40.7% 40.7% 40.7% 40.7%
Capital Expenditures/(a)(c)/ $23.6 mm $19.4 mm $17.5 mm $17.5 mm $17.5 mm $17.5 mm
Net Working Capital (% of Sales) /(c)/
Management Case 26.1% 25.6% 25.0% 25.0% 25.0% 25.0%
Vestar Case 26.1 26.1 25.8 25.7 25.7 25.4
- ------------------------------
Note: Sources include SJK Management projections as of 1/8/99 and Vestar
projections as of 12/31/98. 1998 figures provided in Company's audited
Consolidated Financial Statements as of November 1, 1998.
(a) Assumptions are the same for both Management and Vestar cases.
(b) Based on estimate for 1999 as per Company's budget dated 12/28/98.
(c) As per Vestar's projections and discussions with SJK Management on
1/26/99.
B-4
Valuation Analysis
Summary of Financial Projections
(Dollars in millions, except per share data)
[THE FOLLOWING TABLES WERE DEPICTED AS BAR GRAPHS IN THE PRINTED MATERIAL]
Sales (Growth %)
----------------
1998A 1999E 2000E 2001E 2002E 2003E
------- ------- ------- ------- ------- -------
Actual/(a)/ $282.0
16.5%
Management Case/(b)/ $314.2 $339.4 $366.5 $395.9 $427.5
11.4% 8.0% 8.0% 8.0% 8.0%
Vestar Case/(c)/ $304.9 $327.6 $352.5 $377.0 $403.7
8.2% 7.4% 7.6% 6.9% 7.1%
Gross Profit (Margin %)
-----------------------
1998A 1999E 2000E 2001E 2002E 2003E
------- ------- ------- ------- ------- -------
Actual/(a)/ $161.1
57.1%
Management Case/(b)/ $177.8 $193.4 $210.8 $227.6 $245.8
56.6% 57.0% 57.5% 57.5% 57.5%
Vestar Case/(c)/ $172.7 $185.7 $199.7 $213.5 $228.4
56.7% 56.7% 56.7% 56.6% 56.6%
EBITDA (Margin %)
-----------------
1998A 1999E 2000E 2001E 2002E 2003E
------ ------ ------ ------ ------ -------
Actual (a) $65.4
23.2%
Management Case/(b)/ $71.6 $80.4 $88.3 $94.7 $101.5
22.8% 23.7% 24.1% 23.9% 23.7%
Vestar Case/(c)/ $70.4 $76.2 $82.4 $88.1 $ 94.2
23.1% 23.3% 23.4% 23.4% 23.3%
EBIT (Margin %)
---------------
1998A 1999E 2000E 2001E 2002E 2003E
------ ------ ------ ------ ------ ------
Actual/(a)/ $54.1
19.2%
Management Case/(b)/ $58.4 $66.2 $73.3 $79.2 $85.5
18.6% 19.5% 20.0% 20.0% 20.0%
Vestar Case/(c)/ $57.2 $67.2 $67.2 $71.8 $76.7
18.8% 18.9% 19.1% 19.0% 19.0%
- ---------------------------
Note: Fiscal year ends in the beginning of November.
(a) 1998 figures provided in Company's audited Consolidated Financial
Statements as of November 1, 1998.
(b) Source: SJK Management projections, as of 1/8/99.
(c) Source: Vestar projections, as of 12/31/98.
B-5
Valuation Analysis
Summary Valuation
(Dollars in millions, except per share amounts)
[THE FOLLOWING INFORMATION WAS DEPICTED AS A HORIZONTAL BAR GRAPH IN THE PRINTED
MATERIAL]
Equity Value Per SJK Share
--------------------------
Methodology Management Case/(b)/ Vestar Case
----------- -------------------- -----------
Public Comparables: FY1999E EPS $26.65 -- $30.75 --
- ------------------- $2.05/(b)/
13.0x -- 15.0x
P/E to Growth Rate: P/E/G $13.78 -- $21.65 --
- ------------------- 9.6%/(c)/
0.70x -- 1.10x
Acquisition Comparables: LTM EBITDA: $24.37 -- $31.35 --
- ------------------------ $60.7
6.5x -- 8.5x/(d)/
DCF Analysis: 2003 Terminal EBITDA:/(e)/ $26.64 -- $34.13 $24.94 -- $31.89
- ------------- 6.0x -- 8.0x
Discount Rates
12.5% -- 13.5%
LBO Analysis: Debt to LTM EBITDA:/(f)/ $28.00 -- $31.00 $27.00 -- $30.00
- ------------- 5.2x
3-5 Year Equity Returns:
20% -- 30%
Total Offer Price = $30.00
Cash Offer Price = $29.10
Price Prior to Announcement = $21.94 /(a)/
- -----------------------------
(a) Pre-announcement closing price of $21.94 on 12/8/98.
(b) Based on Company budget dated 12/28/98.
(c) 5-year estimated growth rate based on 5-year EBIT CAGR from Company
projections dated 12/28/98.
(d) Based on LTM 1/99E EBITDA estimate per discussions with SJK Management on
1/26/99. Assumes SJK net debt of ($20.0) mm, minority interest of $0.7 mm,
option proceeds of $10.2 mm and 17.4 mm diluted shares outstanding.
(e) Assumes 2003 EBITDA of $101.5 mm in Management Case and $94.2 mm in Vestar
Case, 17.4 mm diluted shares outstanding, net debt of ($20.0) mm, minority
interest of $0.7 mm and option proceeds of $10.2 mm.
(f) Based on LTM 1/99E EBITDA of $60.7 mm per discussions with SJK Management
on 1/26/99. Reflects total debt of $315.0 mm.
B-6
Valuation Analysis
Selected Comparable Companies Analysis
[THE FOLLOWING TABLES WERE DEPICTED AS BAR GRAPHS IN THE PRINTED MATERIAL]
1999 P/E/(a)/
-------------
Polo Ralph Tommy Liz SJK
Jones Apparel Lauren Gucci Hilfiger Claiborne Nautica SJK/(d)/ Proposal/(e)/
------------- ------ ----- -------- --------- ------- -------- -------------
17.7x 17.6x 16.9x 16.0x 12.8x 9.3x 10.7x 14.6x
Mean/(c)/ = 14.7x
Market Cap./FY1998E Sales/(b)/
------------------------------
Tommy Jones Polo Ralph Liz SJK
Gucci Hilfiger Apparel Lauren Nautica Claiborne SJK/(d)/ Proposal/(e)/
----- -------- ------- ------ ------- --------- -------- -------------
2.85x 2.37x 2.03x 1.51x 0.99x 0.94x 1.25x 1.75x
Mean/(c)/ = 1.57x
1999 P/E to 5-Yr. Growth Rate/(a)/
----------------------------------
Liz Polo Ralph Jones Tommy SJK
Claiborne Lauren Gucci Apparel Hilfiger Nautica SJK/(d)/ Proposal/(e)/
--------- ------ ----- ------- -------- ------- -------- -------------
1.28x 1.18x 1.13x 0.88x 0.73x 0.58x 1.11x 1.52x
10% 15% 15% 20% 22% 16% 10% 10%
Mean/(c)/ = 17%/0.93x
Market Cap./FY1998E EBITDA/(b)/
-------------------------------
Jones Tommy Polo Ralph Liz SJK
Apparel Gucci Hilfiger Lauren Claiborne Nautica SJK/(d)/ Proposal/(e)/
------- ----- -------- ------ --------- ------- -------- -------------
12.1x 11.2x 9.9x 9.9x 7.0x 4.8x 5.4x 7.5x
Mean/(c)/ = 8.7x
- -----------------------------
(a) Earnings estimates and five-year growth rates from First Call as of
1/29/99, except for SJK. Stock prices as of 1/29/99, except for Gucci
which is as of 1/5/99 (day prior to LVMH acquiring a 5.0% stake) and SJK
(see notes (d) and (e)). SJK FY1999E EPS from Company budget dated
12/29/98. SJK 5-year EPS growth rate based on 5-year EBIT CAGR from
Company projections dated 1/8/99. SJK FY1998 sales and EBITDA figures from
Company's audited Consolidated Financial Statements as of November 1, 1998.
(b) Source: Selected Merrill Lynch Equity research reports, except for Gucci
(from DLJ).
(c) Means exclude Gucci and SJK.
(d) Reflects pre-announcement closing price of $21.94/share on December 8,
1998.
(e) Reflects Vestar proposal of $30.00/share.
B-7
Valuation Analysis
Operating Performance Comparison
[THE FOLLOWING TABLES WERE DEPICTED AS BAR GRAPHS IN THE PRINTED MATERIAL]
FY1996 - FY1999E Sales Growth
-----------------------------
Jones Polo
Apparel Liz Ralph Tommy
Gucci Group Claiborne Nautica Lauren Hilfiger SJK/(a)/
----- ----- --------- ------- ------ -------- --------
1997 10.8% 34.2% 8.8% 25.4% 16.7% 28.0% 19.3%
1998 5.6% 19.9% 5.1% 11.5% 12.4% 28.3% 16.5%
1999 13.0% 31.8% 4.5% 10.1% 8.4% 16.5% 11.4%
FY1997 - FY1999E EBIT Margins
-----------------------------
Jones Polo
Apparel Liz Ralph Tommy
Gucci Group Claiborne Nautica Lauren Hilfiger SJK/(a)/
----- ----- --------- ------- ------ -------- --------
1997 24.2% 14.2% 11.5% 18.3% 13.5% 16.7% 24.0%
1998 22.0% 15.4% 11.2% 18.0% 12.9% 18.6% 19.2%
1999 21.1% 15.5% 11.2% 17.4% 13.9% 18.5% 18.6%
- -------------------------------------------
Source: Selected Merrill Lynch equity research reports, except for Gucci (from
DLJ).
(a) 1999 figures reflect Company budget dated 12/28/98. 1999 sales growth
and EBIT margin in Vestar case are 8.2% and 18.8%, respectively.
B-8
Valuation Analysis
Analysis of Recent Acquisition Transactions (1996-present)
[THE FOLLOWING TABLES WERE DEPICTED AS BAR GRAPHS IN THE PRINTED MATERIAL]
LTM EBITDA Multiple
-------------------
(Target/Acquirer)
Designer Lejaby- The Gerber
Pepe Sun Holdings/ Euralis/ William Sun Child- Severin Biderman
Farah Jeans Apparel/ The The Carter Gear For Apparel/ renswear/ Montres/ Industries
Inc./ USA/ Jones Warnaco Warnaco Company/ Sports/ Vestar Citicorp Gucci USA/Vestar
Tropical Tommy Apparel Group, Group, Investcorp. GFSI Capital Venture Group Capital SJK/Vestar
Sportswear Hilfiger USAGroup Inc. Inc. S.A. Holdings Partners Capital NV Partners Proposal/(c)/
- ---------- -------- -------- ---- ---- ---- -------- -------- ------- -- -------- -------------
16.5x 15.1x 8.5x 6.6x 6.5x 6.5x 6.2x 6.0x 4.0x NA NA 7.5x
Mean/(a) (b) /= 6.3x
LTM Sales Multiple
------------------
(Target/Acquirer)
Pepe Designer Lejaby- The Gerber
Jeans Sun Holdings/ Severin Euralis/ William Sun Child- Biderman
USA/ Gear For Apparel/ The Montres/ The Carter Apparel/ Farah renswear/ Industries
Tommy Sports/ Jones Warnaco Gucci Warnaco Company/ Vestar Inc./ Citicorp USA/Vestar
Hilfiger GFSI Apparel Group, Group Group, Investcorp. Capital Tropical Venture Capital SJK/Vestar
USA Holdings Group Inc. NV Inc. S.A. Partners Sportswear Capital Partners Proposal/(c)/
- -------- -------- -------- ---- -- ---- ---- -------- ---------- ------- -------- -------------
3.00x 1.30x 1.10x 0.82x 0.80x 0.75x 0.64x 0.60x 0.50x 0.40x NA 1.75x
Mean/(a) /= 0.77x
Gerber Lejaby- The Designer Pepe
Child- Euralis/ William Holdings/ Sun Severin Jeans Biderman Sun
renswear/ The Carter Gear For The Apparel/ Montres/ USA/ Industries Farah Apparel/
Citicorp Warnaco Company/ Sports/ Warnaco Vestar Gucci Tommy USA/Vestar Inc./ Jones
Venture Group, Investcorp. GFSI Group, Capital Group Hilfiger Capital Tropical Apparel
Capital Inc. S.A. Holdings Inc. Partners NV USA Partners Sportswear Group
------- ---- ---- -------- ---- -------- -- -------- -------- ---------- --------
Transaction
Value: $74.0 $79.2 $204.2 $232.9 $400.5 $156.0 $150.0 $1,223.7 $360.0 $144.9 $445.1
Date: 1/24/96 5/6/96 10/31/96 1/24/97 9/25/97 10/16/97 11/25/97 1/30/98 3/31/98 5/4/98 9/10/98
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(a) Means exclude Pepe Jeans USA/Tommy Hilfiger USA transaction and SJK/Vestar
Proposal.
(b) Mean excludes Farah Inc./Tropical Sportswear.
(c) Represents offer price of $30.00/share and FY1998 sales and EBITDA figures
from Company's audited Consolidated Financial Statements as of November 1,
1998.
B-9
Valuation Analysis
Discounted Cash Flow Analysis Summary
Management Case
Equity Value Per Share /(a)/
-----------------------------------------------
Discount Multiple of 2003E EBITDA/(b)/
-------------------------------------------------
Rate 6.0x 7.0x 8.0x
- ---------- ---------------- -------------- --------------
12.0% $28.18 31.49 34.80
12.5% 27.65 30.89 34.13
13.0% 27.14 30.31 33.47
13.5% 26.64 29.74 32.83
14.0% 26.15 29.18 32.21
Vestar Case
Equity Value Per Share/(a)/
---------------------------------------------
Discount Multiple of 2003E EBITDA/(c)/
-----------------------------------------------
Rate 6.0x 7.0x 8.0x
- ---------- ---------------- -------------- ------------
12.0% $26.38 $29.45 $32.52
12.5% 25.88 28.89 31.89
13.0% 25.41 28.35 31.28
13.5% 24.94 27.82 30.69
14.0% 24.49 27.30 30.11
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(a) Based on 17.4 mm diluted shares outstanding, net debt of ($20.0) mm,
minority interest of $0.7 mm and option proceeds of $10.2 mm.
(b) Based on 2003 EBITDA of $101.5 mm.
(c) Based on 2003 EBITDA of $94.2 mm.
B-10
Valuation Analysis
LBO Summary
(Shares and dollars in millions)
LTM 1/99E EBITDA: $60.7/(a)/
-----------------------------
Offer Value Per Share
-----------------------------------------------
$28.00 $30.00 $32.00
-------------- ---------------- ------------
Transaction Value/ (b)/ $457.6 $492.3 $527.1
Implied LTM 1/99E EBITDA Multiple 7.5x 8.1x 8.7x
Senior Debt @ 8% $155.0 $155.0 $155.0
Subordinated Debt @ 11% $160.0 $160.0 $160.0
New Equity Investment $117.6 $150.0 $182.4
Equity Rollover $ 43.6 $ 46.7 $ 49.8
Total Debt/LTM 1/99E EBITDA 5.2x 5.2x 5.2x
Senior Debt/LTM 1/99E EBITDA 2.6x 2.6x 2.6x
LTM 1/99E EBITDA/Interest 2.0x 2.0x 2.0x
Senior Debt Repaid in 5 years
Management Case 55.7% 55.7% 55.7%
Vestar Case 48.9% 48.9% 48.9%
Implied 3-Year Equity Returns @ Terminal
EBITDA Multiple of:/(c)/
Management Case
---------------
6.5x 22.4% 14.5% 8.3%
7.5x 33.5% 25.0% 18.2%
8.5x 43.1% 33.9% 26.7%
Vestar Case
-----------
6.5x 16.0% 8.5% 2.7%
7.5x 27.5% 19.3% 12.9%
8.5x 37.2% 28.4% 21.5%
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(a) Based on discussions with SJK Management on 1/26/99.
(b) Excludes financing and advisory fees of $20.0 mm.
(c) Assumes exit in year 2001.
B-11