Filed by Perry Ellis International Pursuant to Rule 425 under
the Securities Act of 1933, as amended, and deemed filed
under Rule 14a-12 under the Securities Exchange Act of 1934,
as amended.
Subject Company: Salant Corporation
Commission File No.: 001-06666
PERRY ELLIS
Moderator: Rosemary Trudeau
2-04-03/10:00 am CT
Confirmation #7997770
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PERRY ELLIS
Moderator: Rosemary Trudeau
February 4, 2003
10:00 am CT
Operator: Good morning. My name is (Renee) and I will be your
conference facilitator today. At this time, I would like
to welcome everyone to the Perry Ellis Quarter Earnings
Release Conference Call.
All lines have been placed on mute to prevent any
background noise. After the speakers' remarks, there will
be a question and answer period.
If you would like to ask a question during this time,
simply press star and then the number 1 on your telephone
keypad. If you would like to withdraw your question, press
the pound key. Thank you.
Ms. Trudeau, you may begin your conference.
Rosemary Trudeau: Thank you, operator. Good morning, everyone. You
should have received a copy of the release discussing the
deal with Salant that was released this morning. If you
have not received a copy of this press release, please
contact my office at (305) 418-1247 and we will fax one
out to you immediately. Please bear with me for the next
several minutes as I read the safe harbor provisions that
are more lengthy than normal on the advice of outside
counsel.
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Moderator: Rosemary Trudeau
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I would like to remind you that some of the comments made
on this call, either as part of prepared remarks or in
response to your questions, may contain forward-looking
statements. Such information is subject to the risks and
uncertainties as described in the press release and the
company's and Salant's periodic reports filed with the
Securities and Exchange Commission ("SEC") and in our S-4
Registration Statement to be filed with the SEC in
connection with the deal that we are discussing this
morning.
Forward-looking statements, that is statements that are
not historical fact, in this webcast are made pursuant to
the safe harbor provisions of the Private Securities
Litigation and Reform Act of 1995. It is important to note
that these forward-looking statements reflect management's
expectations and the actual results of Perry Ellis or
Salant could differ materially from those expressed or
indicated in such forward-looking statements.
Factors that could cause or contribute to such differences
include but are not limited to changes in fashion trends,
risks relating to the retail and apparel industry, use of
contract manufacturing and foreign sourcing, integration
of the acquisition, import restrictions, competition,
seasonality, and other factors. Other risks and
uncertainties are detailed in the Perry Ellis's filings
with the SEC including PEI's Annual Report on Form 10K
filed for the year ended January 31, 2002 and Salant's
Annual Report on Form 10K filed for the year ended
December 29, 2001 and Perry Ellis' and Salant's subsequent
quarterly reports filed during fiscal 2003 and 2002,
respectively.
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Any forward-looking statements speak only as of the day
hereof and PEI and Salant disclaim any intent or
obligation to update. I would also like to note that PEI
will file a Registration Statement on SEC Form S-4 and PEI
and Salant will file a Joint Proxy Statement/Prospectus
with the SEC in connection with the merger. PEI and Salant
will mail to their respective stockholders a Joint Proxy
Statement Prospectus containing information about the
merger and the two companies.
Investors and shareholders are urged to read the
Registration Statement and the joint proxy statement
carefully when they become available. The Registration
Statement and Joint Proxy Statement/Prospectus will
contain important information about each of PEI
and Salant, the merger, the persons who will be soliciting
proxies related to the merger, their interest in the
merger, and related matters and information. Investors
and shareholders will be able to obtain free copies of
these documents through the website maintained by the SEC
at www.sec.gov or at one of the SEC's other public
reference rooms in New York, NY or Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further
information with respect to the SEC's public reference
rooms. Free copies of these documents may be obtained by
contacting either myself at (305) 418-1294 and my email
address is rosemary.trudeau@PerryEllis.com or for Salant
you can contact (Awed Asinha) at (212) 536-5425. His email
address is asinha@Salant.com.
PEI, Salant, and their respective executive officers and
directors may be deemed to be participants in the
solicitation of proxies from the respective stockholder's
of PEI and Salant with respect to the transactions
contemplated by the merger agreement.
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The Joint Proxy Statement Prospectus will contain
important information about the persons soliciting the
proxies relating to the merger and their interests in such
transactions. Information regarding PEI's officers and
directors is included in PEI's Definitive Proxy Statement
on Schedule 14A filed by PEI with the SEC on May 7, 2002
for its 2002 Annual Meeting of Shareholders. Information
regarding Salant's officers and directors is included in
Salant's Definitive Proxy Statement on Schedule 14A filed
by Salant with the SEC on May 15, 2002 for its 2002 Annual
Meeting of Shareholders.
Free copies of these documents may also be obtained from
the SEC's website and also from each of the companies.
Joining us for this call from Perry Ellis International
are George Feldenkreis, Chairman and Chief Executive
Officer; Oscar Feldenkreis, President and Chief Operator
Officer; and Tim Page, Chief Financial Officer. Joining us
from Salant is Mike Setola, the Chairman and CEO. I would
now like to turn the call over to George Feldenkreis,
Chairman and Chief Executive Officer of Perry Ellis.
George?
George Feldenkreis: Thank you, Rosemary. Thank you, everybody, for joining us
on this short notice to the - because of the acquisition.
This is a landmark transaction for our company as we unify
the Perry Ellis brand under one region and one operating
platform. We expect that this acquisition will immediately
contribute meaningful earnings accretion. It will improve
our balance sheet, it will provide us new opportunities
for sales growth, and it will allow some (local) operation
of synergies and economies of scale that will further
enhance earnings growth.
Salant has given us permission to mention to you this
morning that it has advised us that it expects to report
approximately $260 million in revenues for fiscal yearend
on December 31. Of this, nearly 170 million is sold under
the
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Perry Ellis label. As you might know, Salant holds the
Perry Ellis licenses for men's sportswear, dress shirts,
dress bottoms, and belts.
A reminder of Salant businesses sold under the (Axis)
(unintelligible) brands, which the company owns, and
through licenses under the (unintelligible) Ocean Pacific
brands. In addition, Salant has some private label
business. Tim Page, our CAFO will discuss the expected
financial impact in some detail but to summarize, we
expect this acquisition to add approximately 25 cents to
30 cents post-merger earnings per share. I would remind
you that the stock today is rating about 18.50 and we're
working with a year forward EPS target of approximately
$2.50 without this acquisition.
And this acquisition, on an annualized pro forma basis -
we would expect our earnings for fiscal 2004 to be in the
$2.75 to $2.80 range. We expect our balance sheet will
become much stronger with this acquisition. While we have
taken on some additional debt to finance the cash portion
of the price, our interest (unintelligible) will improve
sharply once the deal is completed.
We have sufficient working capital to execute our strategy
for the combined business. Also by issuing an additional 2
million shares, we will improve on the liquidity issue,
which is something that has always concerned our
followers. So basically now that we have consolidated
control over the (front) of the wholesale business, we are
in a position to expand or improve some key business units
and (Oscar) will be talking about it. We will have an
excellent opportunity to develop a much stronger licensing
business, both in the domestic scene as well as
international.
Additionally, we will be able to better organize and
direct the shop grants. This will mean a clearer
presentation - a vital message for the consumer and the
retailer as well as a more efficient design and marketing
effort. We believe
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there are compelling relatively short-term opportunities
for the creation of operating efficiencies, particularly
with respect to some back office functions and
distribution operations.
Further, over time we believe that the opportunity to
create excellent economies of scale and perhaps
improvement on the sourcing side. We have been very
pleased with the present (turn) of our Perry Ellis
business unifying the control over the brand and the
wholesale operation will help our company financially and
operationally. It is also gratifying on another level - I
think that Perry Ellis would be very pleased with this
vision which helped create one of the world's great brands
as it has been fulfilled.
I would like to remind some of our friends from the old
days that we went public in May of 2003 and this would be
the tenth anniversary of our IPO. At that time -- I mean,
I'm sorry, May of 1993 -- this would be the anniversary of
our IPO. At that time our revenues were $33 million and
now they are over 300 million and we have created
substantial value for our original stockholders.
We are going to be, with this acquisition, over $600
million. We intend to accelerate our business and continue
to creating value to our stockholders and we appreciate
and we thank all of those for helping us out throughout
this year. Oscar?
Oscar Feldenkreis: Size is a key factor in properly serving the major
retailers of today and into the future. The additional 250
million in revenue we expect this acquisition to add to
our company represents a major step in our drive towards
the $1 billion sales mark. We are also very pleased that
this deal will prove to be both immediately and
significantly (accreted). We have been working
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closely with Salant's management team to structure our
deal so that we will have an excellent opportunity for a
smooth and post-deal integration.
We have found a number of areas where each business can
strengthen the others. Further, the business is highly
complementary in terms of the expertise that Salant has in
the collections, bottoms, and sweater business. This
should enable us to create a broader product line as well
as new product lines such as dress shirts, belts, and
sweaters. This acquisition is also expected to enhance our
already existing bottoms business. We now have an even
greater capability from design, production, sales and
fulfillment standpoint for nearly every major apparel
category.
The ability to directly control the major product
categories of the Perry Ellis brand is essential to being
able to deliver a clear and consistent brand image to
retailers, the ultimate consumer, and domestic and
international licensees. Today we are also confirming that
Perry Ellis International's fiscal `03 earnings are inline
with the expectation of $1.60 to $1.70 EPS. These results
air attributed to our continuous efforts in building our
brands, our diverse product offerings, and our strategy of
supporting multiple retail channels of distribution.
Finally, we are tremendously excited about this
transaction and what it means for our shareholders, our
brands, our customers, and our associates and our future.
I am also very pleased to announce that Mr. (Will Manger)
will continue as President of Perry Ellis. At this time, I
would like to turn it over to our CFO, Tim Page.
Tim Page: Thank you, Oscar, and good morning everyone. First I would
like to update you on our fiscal 2003 year just ended last
Friday on the 31 of January. Our gross revenues for the
year came in at approximately 305 million, which
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represents a record year for us, up about 9% from last
year. For the quarter, our revenues were up 42% over last
year.
As Oscar stated, with this revenues level we expect to
achieve earnings per share in the range of our previously
stated guidance for the year of $1.60 to $1.70. Now on to
the Salant transaction - as George stated, based on
Salant's projected fiscal 2002 estimates, we are expecting
the acquisition of Salant to add about 250 million in
annual revenues and approximately 25 to 30 cents of
earnings to our business.
Salant had about $20 million in EBITDA in fiscal 2002.
With our previously announced revenue guidance for fiscal
2004 of $350 million, this acquisition puts our pro forma
2004 revenues in the 600 million range on a consolidated
basis. EBITDA is projected to be approximately 65 million.
From an earnings perspective, we feel there are
opportunities to realize some additional synergies that we
are not considering in our post-acquisition earnings
estimate and we are going to work hard to realize them.
Total considerations to be paid is $91 million. Of that
total, about 52 million will be cash. The remaining $39
million of consideration is to be paid through the
issuance of new shares of Perry Ellis stock. Salant has no
bank debt or any kind of funded debt. Based on our due
diligence, we expect that Salant will have at least 20
million in cash on hand at the time of closing, bring our
net out of pocket cash to close to the deal to about $32
million plus transaction costs.
Based on yesterday's closing price of Perry Ellis stock of
$17.54, about 2,225,000 new shares would be issued. The
actual number to be issued will be determined by the
average closing share price for Perry Ellis stock for the
20 day period ending three days prior to closing. The
maximum number of
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shares that can be issued is 3,250,000 shares, equivalent
to an average share price of Perry Ellis of $12.
If the average share price of Perry Ellis is above $12,
fewer shares are issued. If the average share price of
Perry Ellis falls below that level, only 3,250,000 shares
are issued and the difference is made up in cash. It is
important to note that the 25 to 30 cent incremental EPS
guidance range we are providing assumes the maximum level
of dilution. If our average share price for the 20 day
period before closing is above the $12 level, we will
issue fewer shares and our expected EPS for next year
would be expected to increase accordingly.
Additionally, we believe our earnings guidance for the
acquisition is conservative and that our projections have
discounted Salant's 2002 actual operating results to
reflect any unanticipated and unforeseen earnings pressure
that would result from this acquisition. It is also
important to note that Salant has about $125 million of
federal income tax net operating losses. Subject to IRS
limitations that occur when changes of control, these
NOL's are expected to reduce our future out of pocket tax
payments by about $1.6 million per year for the next 15
years.
On a net present value basis, these NOL's are worth about
$10 million in reduced tax payment to us. If one deducts
the cash we expect Salant to have at closing and the
values of the NOL from the net purchase price, we're
paying about $60 million for this business. Against this
$60 million adjusted price we are getting approximately
$70 million in inventory and receivables and a business
that generated $20 million in EBITDA last year.
Our balance sheet will improve significantly after the
transaction despite some additional indebtedness. Our debt
to equity ratio will improve and various
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debt coverage ratios are expected to improve
significantly. For example we believe our interest
coverage ratio, which at the close of fiscal - the fiscal
year that just ended will be approximately 2.2 would have
been about three times had this transaction been completed
at the beginning of this fiscal year. Our funded debt
leverage ration, which we expect to be about 4.6 times for
the fiscal year that's just tended, would have been about
3.75 times had this deal been done at the beginning of the
year.
Finally, as a point of clarification, this transaction is
expected to close in the middle of our fiscal year, the
numbers that relate to Salant that I have spoken of are
annualized numbers, that is they are estimates of what the
impact of this acquisition would be if it were in effect
for a full year. I'll pass the call on - back to George.
Thank you.
George Feldenkreis: I will - we can start now on Q&A period and once again,
thank you for - to everybody. We're very excited about
this great opportunity and want the (unintelligible) for
all our stockholders and all the associates that have
worked to hard to make this happen, both on the Salant
side and the Perry Ellis side and I want to thank all of
our employees, associates, suppliers, and friends who have
been with us through all this period. I'm now turning it
over to question and answer.
Operator: At this time I would like to remind everyone in order to
ask a question please press star then the number 1 on your
telephone keypad. We'll pause for just a moment to compile
the Q&A roster. Your first question comes from (Lewis
Fark).
(Lewis Fark): Hi it's (Chesapeake Partners) - congratulations on the
deal. Can you just go through - I mean, effectively you're
saying that you're getting this for -
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paying $60 million for a company that should earn about
$20 million in EBITDA. Is that correct?
Tim Page: Based on our due diligence, it earned about 20 million in
EBITDA last year.
(Lewis Fark): Okay which is significantly higher, I think, than the run
rate for the four quarters ended September? Is that
correct?
Tim Page: Correct.
(Lewis Fark): Okay - there was like 12 or 13 million and they must have
just had a bang-up fourth quarter? Is that correct?
Tim Page: They had a good fourth quarter but conversely they had a
really bad fourth quarter the prior year so both things
are impacting it.
(Lewis Fark): Okay so three times - very good. Thank you very much.
Operator: Your next question comes from (Jeb Stewart).
(Jeb Stewart): Thank you. Tim, can you give us - you gave us a revenue
for yearend for old Perry Ellis. What was your debt number
at yearend?
Tim Page: What do you mean by old Perry Ellis?
(Jeb Stewart): Well pre-acquisition.
Tim Page: Pre-acquisition for - was 305 million.
(Jeb Stewart): And what was the debt number?
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Tim Page: The debt number is - we had about $20 million of revolver
borrowings at yearend.
(Jeb Stewart): Is it - what other impact will the NOL's have for the
income statement or will they?
Tim Page: I mean, the tax benefit will flow through so we'll wind up
actually showing a slightly lower effective tax rate in
the future than we have historically so it'll be a
positive EPS factor.
(Jeb Stewart): One hundred basis points - a couple hundred?
Tim Page: It's about -- off the top of my head I can't remember the
number -- it's about - yeah, about 100 basis points.
(Jeb Stewart): And then...
Tim Page: Then the number - and that's in - considered in the number
we spoke of.
(Jeb Stewart): Okay and keeping with the previous question - Salant's 10Q
for the September quarter actually showed some - I think
the negative sales number on the Perry Ellis side was less
than 10%. I'm wondering - did that reverse itself in Q4?
Tim Page: Mike?
(Mike Setola): We have not released fourth quarter or yearend numbers so
I can't comment but I can comment through third quarter.
While the sales for the branded business - the Perry
business had slightly decreased, it was as a result of a
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reduction in off price sales to off price channels of
distribution. Our regular price business was actually up.
(Jeb Stewart): And looking at that Q, there is some retail associated with
this business?
(Mike): Yes.
(Jeb Stewart): Is that correct? Is that retail sales or do they actually
have stores?
(Mike Setola): They actually have stores.
(Jeb Stewart): And what are your plans for those stores?
George Feldenkreis: We plan to continue - we will review those stores and see
whether there are any that have to be closed. We feel that
by adding more products, like (unintelligible) and other
products that really Salant was precluded from doing, we
would be able to increase sales to those stores and make a
profit of them.
(Jeb Stewart): Are those off price stores or are they full price?
George Feldenkreis: They are outlet stores.
(Jeb Stewart): Outlet stores.
George Feldenkreis: They are located in outlet malls.
(Jeb Stewart): Okay so that - should is and should continue to be a good
source for off price goods and seconds and overruns?
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George Feldenkreis: In the - frankly, in the past it didn't make a profit in
the last two years. We feel that by putting renewed efforts
into changing that, we should make a profit.
(Jeb Stewart): You've planted new merchandise there or new guys to run the
stores or are you going to...
George Feldenkreis: If the store manager of the - we haven't been able to
interview really any - very few people there so we will
make announcements of that a little bit further.
Tim Page: I think it would be fair to say that the outlet business
has been tough the last two years in that, you know, we
think there are opportunities, as George said, to increase
the, you know, the diversity of the merchandise that the
stores can sell. Salant had restrictions because of its
license arrangement with us in what kinds of Perry Ellis
product they could sell so, you know, the stores should be
more fully merchandised, I think, going forward
(Jeb Stewart): Okay thank you.
Operator: Your next question comes from (Clark Orsky).
(Clark Orsky): Hi is the cash portion - is that coming off the revolver?
Tim Page: Cash - the part that we're going to fund? Yes. We have
signed a new credit agreement - well we have a commitment
letter from Congress for a new $110 million credit
facility.
(Clark Orsky): Okay.
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Tim Page: But even under our existing revolver, we would have the
availability and the funds available to fund this
transaction.
(Clark Orsky): Okay and you're going to close that revolver coincident
with this deal then? Is that the?
Tim Page: Yes.
(Clark Orsky): I guess the other question I have is just on the - in the
opening comments you talked about how this is going to
strengthen the licensing business. I just wondered if you
could elaborate on, sort of, how you see that happening?
George Feldenkreis: Well, number 1, we're a much stronger company - we will be
perceived as a much stronger company where licensees want
to be together with. And number 2, the main - the bigger
part of the license, which is the men's sportswear and
related, will be managed by Salant. For example, if we have
a licensee that a company want to license our product in
the UK or somewhere in Europe, wherever, we have to work
with Salant for Salant to give them design directions,
samples, etcetera, etcetera and Salant really didn't have
anything coming for that unless we work out a deal with
them.
Now we are one company so we can offer all the design
direction and whatever we need to offer to make a licensee
successful and there are not different interest. There is
only one interest going forward.
(Clark Orsky): I see. Thank you.
George Feldenkreis: You're welcome.
Operator: Your next question comes from (Matt Latee).
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(Matt Latee): Hi good morning. Can you elaborate a little on cost
synergies and savings that you mentioned in the release -
specifically, where they will be realized and the magnitude
of those synergies? If you are unable to provide that
detail, what remains in turns of due diligence to be able
to get us to that?
Oscar Feldenkreis: We're fairly far along in the financial due diligence of
the - actually, we're finished on the financial due
diligence. And we haven't really started analyzing
operating synergies or efficiencies to any great extent.
You know, we do know that we have distribution facilities
and Salant has distribution facilities and certainly, there
will be opportunities for each of us to - for each type of
these facilities to do the things each of them do well.
Our company is structured a certain way and Salant is
structured a certain way and we'll be able to use our
distribution facilities more efficiently going forward. You
know, inevitably, there will be some ability to save some
money in areas where we only have one public company
expense now whereas each company was having to comply with,
you know, (unintelligible) and related. And then there are
overseas offices. WE have a number of offices in China and
Salant has offices in Hong Kong and, certainly, there will
be some efficiencies that we can realize there.
But we haven't constructed this deal on the basis that we
were going to immediately realize a lot of operating
synergies - that's kind of the gravy of the transaction. It
still works and provides a lot of accretion even without
those things.
(Matt Latee): As a follow-up in a different vein - in the agreement are
there any performance hurdles or conditions outside of
(MAC)?
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Oscar Feldenkreis: Standard public company transaction - no performance
hurdles.
(Matt Latee): Thank you.
Operator: At this time I would like to remind everyone in order to
ask a question, please press star and then the number 1 on
your telephone keypad. Your next question comes from
Jeannie Cruise.
Jeannie Cruise: Good morning. I have a few questions. Can you just take me
through the total debt structure performing for this
transaction - you have 20 million drawing now and then an
additional net 32 million will be drawn, I think, for this
still?
Tim Page: Right. We have 20 million drawn now but we're actually at
the absolute peak of our borrowing requirements right now.
I would expect that for Perry Ellis on a stand alone basis,
we actually won't have any cash drawn at the time this
transaction is closed - say May, June. So our total debt
structure will be - we have $100 million of senior -
subordinated bonds outstanding - 121/4% bonds will remain
outstanding. We have $57 million of senior secured notes
that will remain outstanding. We have an $11 million
mortgage and the only other borrowing then would be
whatever revolver cap we borrow to fund this acquisition.
I'm estimating that'll be in the $30 to $35 million range.
Jeannie Cruise: Okay. And just - I haven't had the opportunity to look at
the Salant public filings but I guess just for
clarification somebody brought up before the nine-month
number. Was the nine-month EBITDA $12 million or the run
rate at that quarter was $12 million?
Man: The last 12 months.
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Jeannie Cruise: Okay at this type of period. And then just regarding
Salant's operations, any plans for - I know you talked
about consolidations on the overseas offices but
consolidations on the manufacturing side and what are your
expectations for working capital?
Man: Well, neither of us own any manufacturing facilities so
there's really not anything to consolidate in that regards.
There will obviously - we buy in all over the world, China,
Vietnam, you know, virtually any place that product is made
as does Salant. So inevitability there will be
opportunities to do that more efficiently than each of us
does it individually now.
And I missed the second part of your question.
Jeannie Cruise: Okay. Just, I guess, any expectations or just expectations
for working capital with the Salant business or do you
expect any change overall?
Man: I don't - there shouldn't be a need to really invest in
working capital with the Salant acquisition.
Jeannie Cruise: Thank you.
Man: The thing, Jean, I think is important to know that the -
number one we're borrowing $20 million on the revolver
because we are at the height of the Jantzen business. And
the Jantzen business does not require any big investment as
of May or June when we collect our receivables.
Jeannie Cruise: Yes, I understand. Now I know.
Man: Even why we're there. And the second is that we will be
able to - we are acquiring all the receivables and even if
the Salant, which means we're
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acquiring the total working capital of the company. So
really our balance in relation to our asset base will be
very low.
Jeannie Cruise: Thank you.
Operator: Your next question comes from Jeff Stewart.
Jeff Stewart: Thank you. Let me ask a quick one, following up from
Jean. And that is - are we on track from Q4 with the
swimsuit business? Do you feel good about how you are
going into the real meat of the season here?
Man: We're on track on the January - on the last quarter. Our
fourth quarter was what we had projected, which was about
$19, $20 million for Jantzen for the quarter. And right
now we are on track for doing the same thing on the first
quarter. We're a little bit behind on deliveries at the
end of the year but we have come back very strong. And
January was a very pleasant surprise. We're able to ship
what we expected.
Jeff Stewart: And you feel like the sell through going to be there so
you hopefully won't be a lot end of season markdowns?
Man: We feel that our designers are great and the product
great so we hope the sales proves it. We would like
someone to start the motor running now that it's cold in
New York but...
Jeff Stewart: One thing I forgot to ask before and I could be missing
the mark here but I was trying to read through some of
the Salant documents. Is there some sort of remaining
earn out related to an earlier acquisition?
Man: There's some money in escrow but it's already been put in
escrow.
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Jeff Stewart: Is that reflected in that $20 million cash balance?
Man: That's totally out of the control of Salant.
Jeff Stewart: Okay. Great. That's all I had. Thank you.
Operator: Your next question comes from Larry Leaves.
Larry Leaves: George, Oscar, it's history baby. I want to congratulate
- is Setola going to be there or he's not coming?
Man: He's on the phone.
Larry Leaves: Mike?
Mike Setola: Yes, Larry, how are you?
Larry Leaves: Congratulations for, you know, I'm sort of teary eyed and
anyway but I'm very teary eyed on this.
Mike Setola: As another member of the ex-Salant CEO club.
Larry Leaves: Yes, listen you guys, I think it's
Man: Larry created very early so he has a lot to say of this
one.
Larry Leaves: I think it's wonderful, you guys. I wish you lots of luck
and happiness. That's all I have to say.
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Man: Thank you, sir, Larry.
Man: Thank you.
Operator: Your next question comes from Peter Reed.
Peter Reed: Yes, you guys mentioned 25 to 30 cents in increase on an
annualized basis. Given the seasonality, will you get the
full benefit of this - of that this year in closing,
midway through the year or?
Man: We'll get - we expect to get more than half of it but
it's hard to peg exactly what the impact will be because
we can't control the closing process is kind of in the
hands of the SEC and, you know, the regulators so we
don't know exactly when it's going to close so it's hard
to say exactly what the effect is going to be. But
certainly Salant earns more of it - has historically
earned more of it's earnings in the second half of the
year than in the first half.
Peter Reed: Okay. Right. So your full year guidance of 275 to 280
might - I mean, that's not really an accurate number.
Man: No, as I said, that's what it would be if the acquisition
happened at the beginning of the year.
Peter Reed: Right. Right, okay. All right, thank you.
Man: Okay.
Operator: Your next question comes from Jonas (Unintelligible).
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Jonas: Hi, congratulations. I'm not familiar with the Salant
shares. How much of that is mostly held by insiders?
Man: I would say that about 80% to 85% is held by insiders.
Jonas: Okay. And once the deal closes, you're free to
(unintelligible) waiting period?
Man: Excuse me.
Jonas: Once the deal closes, are the insiders free to sell the
Perry Ellis stock that they received?
Man: Yes.
Jonas: Okay. And also when's a timing of the deal to close, I
see you need shareholder approval from both companies?
Man: We're estimating that it's going to be mid-June.
Jonas: Okay. Thank you.
Operator: Your next question comes from Mark Fort.
Mark Fort: Hi, I apologize if this is covered but I'd like to ask
you to go through the calculation of the exact
consideration per share both above the $12.00 break point
and below it?
Man: You just - the exact consideration is $52 million in cash
and $39 million in Perry Ellis stock. So you take the -
whatever the average closing share price,
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the 20 days before the deal closes. Let's say that's
$17.00. You take $39 million and divide it by $17.00,
that tells you how many shares of Perry Ellis stock'll be
issued.
So you do that for any share price over $12.00. If it's
less than $12.00, we would issue 3,250,000 shares and
we'd calculate whatever that multiplied times the share
price. Calculate what that number is and then subtract
that from $39 million and that difference would then be
made up in cash to the shareholders. But in any event,
Salant shareholders will always get $91 million in total
for the fully diluted shares of Salant Corporation.
Mark Fort: Okay but is it going to be calculated at an aggregate
basis or is there a per share amount that you're going to
fix starting at this point? In other words, the press
release mentions the amount of fully diluted shares are
outstanding after January 31 for both companies. Should
we assume that if that number changes for Salant than the
exact per share consideration is going to change or is it
currently fixed using that number?
Man: Yes but, I mean, the fully diluted shares for Salant
wouldn't change other than unless some option holder of
Salant, you know, happened to leave the company and lost
their options. That would be the only way that they could
- that that number would change at this point. They can't
issue any new shares. They can't buy shares back, etc.
Mark Fort: Okay but nevertheless when - from the standpoint of the
merger agreement can I assume that it's - I mean, if you
do the math $39 million divided by that 9.7 million
number, it's four dollars and 1 1/2 cents, you know,
going out a couple of decimals. But can I assume - use
that $4.015 or is that subject to change?
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Man: Subject to change based on what Perry Ellis' share price
is the 20 days ending three days prior to closing.
Mark Fort: Okay, the price of Perry product I'm understanding but
what I'm asking about is the - is it based - subject to
change based on the actual number of Salant shares given
taking into account things like option holders and that
other sort of...
Man: From a practical standpoint the actual number of Salant
shares is not going to change.
Mark Fort: Okay. And then one last question, you mentioned the June
time frame and I'm wondering why you expect it to take
that long? Mergers from my experience go - regular,
normal, run of the mill mergers at least usually take
about three or four months maximum.
Man: Well, we have to file an S4 and because both of us are
just ending - Salant just ended its fiscal year and we
ended our fiscal year January 31st. We expect to file an
S4 with both companies 12-month numbers. So that won't
happen until sometime the very end of February or the
beginning of March.
The SEC then gets a minimum of 30 days to review it and
our - based on our outside council, there's a chance that
the SEC will have some questions. And by the time we just
go through that process, it could very well be mid-June.
The absolute earliest it could close if everything went
perfectly would be May 1st. But our expectations is that
there'll be some questions just because of the, you know,
environment today and that we'll be looking at a mid-June
time frame.
Mark Fort: Okay, thank you very much.
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Operator: Your next question comes from Dan (Unintelligible).
Dan: Hi, I just wanted to reiterate on the previous question,
which was that consideration. If you could just go through
it one more time because I got on a little late. But just
I guess it is a collar, which would depend on being less
or more - or greater than the $12.00 Perry Ellis stock?
Man: Yes. Right. So again at $12.00 you take $39 million and
divide it by $12.00 that gives you 3,250,000 shares of
Perry Ellis stock. If our - and then, the exchange rates
where you would calculate based on those number of shares.
Any price above $12.00 Perry Ellis will exchange fewer
shares for the Salant shareholders. The $39 million stays
the same; we just divide whatever Perry Ellis' share price
is into the $39 million. That tells us what the number of
shares of the Perry Ellis stock that will be issued.
Dan: Okay.
Man: The price below $12.00, let's say $10.00. You would take
$10.00 into $39 million or you would take 3,250,000 shares
times ten, which would give you $32,500,000. You would
then subtract that from $39 million so the Salant
shareholders would get an extra $6.5 million cash to make
up for the fact that Perry Ellis stock had fallen below
$12.00 a share. When the - the deal is still worth $91
million in total for the Salant shareholders.
Dan: Okay so that's how you would figure out the cap on the
cash level as well?
Man: Yes.
Dan: Okay, thanks.
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Operator: Your next question comes from Andrew Starr.
Andrew Starr: Hi, I'm sorry about that actually I thought I removed
myself from the queue. My question's already answered.
Man: Okay, that was easy.
Operator: Your next question comes from Matt (Unintelligible).
Man: Yes?
Matt: Hi, I'm sorry. Could you tell me what the termination
date is and if there's any termination fee associated
with the transaction?
Man: There's a termination fee that runs between 2% and 4% of
the transaction depending on why the transaction would
be terminated. And I believe the drop dead date is
July 31st.
Matt: July 31. Thank you.
Operator: Your next question comes from Jeannie Cruise.
Jeannie Cruise: Hi, I just have a few more questions. What is the size of
your (unintelligible) credit facility?
Man: Sixty million.
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Jeannie Cruise: Sixty. I guess your upsizing it $50 million with this
new - the acquisition. And this sale process with Salant,
how was that handled? Was it an auction or was it just
privately negotiated?
Man: Privately negotiated.
Jeannie Cruise: Okay. And just on Jantzen do you feel that that's fully
integrated at this point?
Man: I wouldn't say fully but it's substantially integrated.
Jeannie Cruise: What's basically left?
Man: Well, I mean, there's - we're still working on
transitioning sourcing to more of a sourcing model that is
consistent with the way we do business from - moving it
from an 807, which is a cutting US fabrics in the United
States and selling them in the western hemisphere to more
of an import full package model.
Jeannie Cruise: Okay.
Man: And we're working - still working on that process. Our
objective this year was just to get the acquisition, get
product delivered. We got started on the acquisition late
in the year and it's a - our focus was really on trying to
deliver this year.
Jeannie Cruise: Right.
Man: And it's already in a creed of transaction.
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Jeannie Cruise: Right. When do you expect to be converted over or
transitioned to the import model?
Man: It'll be a process that goes on for a couple of years but
we'll be well into it next year.
Jeannie Cruise: Okay.
Man: It's not something - you don't just move all your
production in one season. So it'll happen over a several
year period but we expect the - a good amount of it to
transition next year. And that'll only further enhance the
creed of nature of the Jantzen transaction for us.
Jeannie Cruise: Great, thank you.
Operator: At this time, I would like to remind everyone in order to
ask a question please press star then the number 1 on your
telephone keypad.
Rosemary Trudeau: If there are no more questions...
Operator: Your next question comes from Joel (unintelligible).
Joel: Yes, wonderful news - I'm so happy for you guys. One
question, though, with the issuance of more shares and it
seems to be greater trading and more liquidity, any
thought of possibly splitting the stocks so it's even
greater, you know, greater number of shares trading?
Man: It's too early to answer that but evidently we - one of
our things that have been recommended to our stock has
always been the issue of people wanting to buy a few
hundred thousand shares and them not being available. And
one
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of the (unintelligible) a few hundred thousand shares and
finding no buying at that point.
We did the split a few years ago. We did a three for two
split and if the part of the (unintelligible) gets to a
number that might make it worthwhile, we will certainly
consider it. We are interested in increasingly
(unintelligible) and feel it's very important to really
have a currency to be able to use a lot of the
opportunities available today in the apparel business.
Joel: Well, I think it'll definitely attract interest in the
stock because it's been difficult to get people to buy
things - buy shares where it doesn't trade a lot.
Man: We are there with you, Joel.
Joel: All right, well, congratulations.
Man: Thank you.
Operator: Your next question comes from Mark Fort.
Mark Fort: Hi, one more follow up question. Is there a price - a low
price, a maximum low price - which, I guess, there would
some sort of walk away? I mean, in the unlikely event that
Perry Ellis stock went way below $12.00, would that mean
that Perry Ellis would have to pay much of the
consideration in cash? Is there a limit how far down you
would let that go?
Man: Technically, there isn't a limit. But from practical a
standpoint there are obviously mac outs that would
probably cover a situation like that because for the stock
price to go there, there'd have to be some catastrophic
event one
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would expect that would be driving that so there's not
from a technical standpoint, no there isn't a limit.
Mark Fort: Okay, thank you.
Operator: At this time, there are no further questions.
Man: I want to thank very much everybody that took the time to
be with us. And I want to thank also very much Mike Setola
and everybody on the Salant team that helped make this
possible. And (unintelligible) and everybody on our team
that worked so hard to make it possible. As well as to all
the lawyers, consultants, accountants, and everybody that
has been involved in it. So thank you very much to all of
you and we expect to be - to make it worthwhile for all of
you. Thank you.
Operator: This concludes today's conference. Thank you for your
participation. You may now disconnect.
END