Clothing manufacturer Pacific Brands has confirmed a possible buy out of the company could be on the cards, following falling profits and a legal scuffle.
In a statement to the Australian Securities Exchange this morning, Pacific Brands confirmed it has received an unsolicited approach from private equity outfit KKR regarding a possible acquisition of the entire issued capital of the company.
Pacific Brands also indicated that the board, together with its advisers Flagstaff Partners and Minter Ellison, is considering the approach and preliminary discussions are being held with KKR. However, the company also said there is no certainty that these discussions will lead to any agreement being reached between the parties.
The announcement follows a year of flat sales, as reported in the group's FY11 results in August. Total group sales fell by 7.3 per cent, with cash flow dropping 41 per cent and total net profits plummeting by $131.5 million. The group's full-year EBITA plateaued at $189.7 million – a less than five per cent increase on the previous year.
In addition, Pacific Brands is also on the brink of a legal battle with one of its Chinese manufacturers, after the group cut the volume of bras it orders from two factories.
The Hong Kong-based PD Enterprise, which operates nine factories in mainland China, alleged in December that Pacific Brands' bra division, Berlei, slashed orders to about a 20th of the previous year's volume last year. Other allegations also include a breach of contract associated with the minimum order amount for Jockey and Holeproof underwear.
In a statement to Ragtrader, a spokesman from the company said Pacific Brands would “vigorously defend the claim”.
“For some months Pacific Brands has been in discussion with PD Enterprise Limited, a major Hong Kong based garment supplier, in respect of a dispute over volume commitments and rebate claims relating to historical garment supply contracts.
“These contracts ended some time ago and the dispute has no impact on current supply. Pacific Brands was not able to reach a commercial settlement with the supplier and as a consequence, PD Enterprise Limited has commenced proceedings against Pacific Brands in the Victorian Supreme Court.
“The company will vigorously defend the claim.”
Pacific Brands is an ASX-listed clothing company which owns a raft of brands, including Bonds, King Gee, Stubbies, Jockey, Diesel, Everlast, Berlei and Mossimo.