Nike: Divestiture Of Cole Haan, Umbro Bring In A Fair Amount Of Cash

| About: Nike Inc. (NKE)
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Shares of Nike (NKE) rose some 1.9% in Friday's trading session. The athletic footwear and apparel company announced the sale of its Cole Haan brand to Apax Partners, for $570 million.

The Deal

Nike announced on Friday that it will divest, Cole Haan, to private-equity firm Apax Partners, for a total consideration of $570 million.

Nike announced in May of this year its intention to divest Umbro and Cole Haan so it can focus on its core brands. Nike wants to drive growth in the Nike, Jordan, Converse and Hurley Brands. Just a couple of weeks ago, Nike sold Umbro for $225 million to Iconix Brand Group (ICON).

CEO Mark Parker commented on the deal,

The decision to divest of Cole Haan allows us to sharpen our focus on opportunities with the highest potential for strong returns, and to make sure the brands within the NIKE portfolio are the most complementary to the NIKE Brand.

Combined, Nike will receive $895 million for both Cole Haan and Umbro. The two businesses generated $195 million in revenues for the first quarter of its fiscal 2013. The units reported an operating loss of $18 million for the period. Based on an annual revenue estimate of $750-$800 million, this values the assets at 1.2 times annual revenues.

Nike expects to complete the sale early in 2013.


Nike ended its first quarter of its fiscal 2013 with $3.3 billion in cash, equivalents and short term investments. The company operates with $0.4 billion in short and long term debt, for a net cash position of $2.9 billion.

The company reported annual revenues of $24.1 billion for its fiscal 2012, on which it net earned $2.2 billion, or $4.73 per diluted share.

The market currently values Nike at $41.7 billion, which values operating assets around $38.8 billion. This values the firm at 1.6 times annual revenues and 17-18 times annual earnings.

Nike currently pays a quarterly dividend of $0.42 per share, for an annual dividend yield of 1.8%.

Investment Thesis

Year to date, shares of Nike have fallen some 4%. Shares rose from $95 in January to a peak at $115 in May. Shares fell back to the high eighties during the summer on a weaker guidance. Shares recovered a bit from those days, currently exchanging hands at $92.50 per share.

Over the past decade, shares of Nike have quadrupled. From lows of $40 in 2009, shares have more than doubled on the back of growth driven by trends in running and sophisticated sport devices. Between its fiscal 2009 and 2012, revenues grew from $19.2 billion to $24.1 billion. Net income rose from $1.5 billion to $2.2 billion.

Combined, Cole Haan and Umbro generate roughly 3% of Nike's annual revenues, so the impact of the divestiture is rather limited. The proceeds at 1.2 times annual revenues are rather generous compared to Nike's own valuation of 1.6 times annual revenues, given the operating losses of the division.

Nike recently announced a new four year $8 billion share repurchase program, sufficient to retire roughly a fifth of shares outstanding. Excluding earnings growth, completion of the repurchase program could boost earnings per share towards $6.

The company remains on track to please shareholders. Beside the repurchase program, the company furthermore announced a 17% dividend hike and announced a 2-for-1 stock split.

Shares are fairly valued at these levels, but I see few convincing reasons to initiate a short or long position at these levels.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.