Private equity giant considers Pacific Brands buyout as expert tips rush of retail bargain hunting

Pacific Brands, the beleaguered owner of household brands Bonds, Sheridan and Hard Yakka, is holding preliminary talks with private equity giant Kohlberg Kravis Roberts, amid predictions there’ll be plenty of retail deals in early 2012.

The underwear and clothing retailer has flagged a return to private equity ownership by telling the market this morning it is considering an unsolicited approach from KKR.

“There is no certainty that these discussions will lead to any agreement being reached with the parties,” it said.

PacBrands was floated by CVC Asia Pacific in 2004, at $2.50 per share. It closed yesterday at 56 cents per share, valuing the company at $511 million. A takeover would likely be valued at $600 million, the Australian Financial Review says.

David Gordon, partner in charge of the national retail advisory practice at WHK Group, says PacBrands has faced a few headwinds: the decision of Kmart to pull its products in favour of cheaper home-brand products, troubles across retail more broadly and their products being easily substituted and therefore requiring heavy investments in marketing.

The company has also attracted negative publicity for shutting down its Australian manufacturing operations in favour of Asian manufacturing, and a bullying case from a former staffer.

It’s believed the company has been trying to do a retail rollout over the past six to eight months, amid difficult conditions for the sector.

Gordon expects more deals in retail to be announced early this year.

“I think that post-Christmas there’s going to be a lot of decisions that have been put on hold made,” he told SmartCompany this morning.

“You’ll have a lot of banks and a lot of boards and shareholders thinking about whether their effort and their money is better focused elsewhere.”

“There might be a little bit of a shakeup in terms of private equity or competitors buying in.”

As for KRR’s plans for the business, Gordon says it’s possible it has concluded that PacBrands’ parts are worth more than the whole. Its brands include Berlei and Holeproof underwear, Clarks shoes, streetwear brands Everlast and Diesel, and pillow maker Tontine.

“Maybe it’s a breakup,” Gordon says.

According to the Australian Financial Review, the company has an open mind on returning to private ownership while it undertakes a restructuring. It posted a 7% fall in revenue for the 2010 financial year to $1.6 billion, stressing its $150 million in savings from a restructuring program.

According to its website, Pacific Brands has operations across Australia, New Zealand, the United Kingdom, Malaysia, China and Indonesia, and about 5,000 employees.

“We make in excess of 300,000 different products and sell over 200 million units per year. Our brands have become iconic household names. Pacific Brands is committed to creating products that meet the changing needs of consumers. We will innovate. We will excite. We will make more of the every day,” it says.