Quiksilver Celebrates DC Deal

Less than three hours after it was announced that Quiksilver had agreed to purchase DC Shoe Company, Quiksilver hosted an press conference/party/champagne toast at its corporate headquarters in Huntington Beach, California. The event mood was electric, as two premiere action-sports brands shook the industry’s foundations with this deal. Certainly, the joining of the two brands was going to boost each into stronger leadership positions in their respective categories.

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The action took place in the heart of Quiksilver’s headquarters. In the middle of its building is a gym-like auditorium with retractable wooden bleachers (much more comfortable than the ones in your high school). Across from the bleachers is a stage with movie screens hanging above. At one end of the stage was a DJ spinning tunes, at the other, a podium with microphone, and beyond that a kitchen counter with bottles of champagne and plenty of glasses for the toast.

On hand was a crowd of approximately 500 Quiksilver staff employees, plus DC’s management crew consisting of VP’s and above, plus several skaters including Danny Way and Colin McKay. There were several press members attending as well, including a good-sized crew from TransWorld Media. The area was packed with plenty standing on both ends of the hallway.

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With a Coors Light in one hand and the press release and prepared speech in the other, Bob McKnight, Quiksilver’s Chairman of the Board and CEO, kicked things off with a welcome to the crowd. He then read the statement of the news, outlining the four main reasons why Quiksilver thought purchasing DC was a good deal. Some of those included the fact that both brands cater to the same customer demographic and psychographic. The deal would also help Quiksilver become a major player in the action-sports footwear market instantaneously and DC’s expertise would help accelerate Quiksilver’s shoe business ventures. With 20 percent of DC’s business coming from apparel and accessories, Quiksilver also feels there’s opportunity for it to help DC maximize these categories.

After McKnight’s initial remarks, a Quiksilver video clip of Tony Hawk was shown where he talked about how you don’t have to explain things to the people at Quiksilver: they just get it. That was followed by a short section of The DC Video, with loud hoots coming when Danny Way launched his huge gap jumps.

Quiksilver’s President Bernard Mariette followed, and talked about the company’s recent growth, including its purchase of the Quiksilver worldwide trademark in 2000 and signing a major distribution deal for China in 2002. He said that at this point, Quiksilver was ready to do a deal and it was evident that DC was the right match.

Then came Bill Bussiere, who was called the “Deal Mobile” by McKnight. Bussiere, Quiksilver’s CFO, Americas, said that the deal officially started at a discussion at the SIA show, and it was evident from the start that DC Owner Ken Block was comfortable with the Quiksilver team because he ate through the whole meeting. He also said this was the fastest deal of this size Quiksilver has ever put together and he complimented a lot of people both at DC and at Quik for their hard work trying to get it done.

Next up was Danny Kwock, who said that Quiksilver had been trying to sign Danny Way for a long time, and he was glad they finally found a way to do it. (Of course, DC has stellar skate, surf, snowboard, and motocross teams, which Quiksilver will be able to tap into directly.)

Then the DC management crew had a chance to talk about the deal, and DC President Brian Sellstrom started things off by saying he’s extremely happy about the deal. “This offers the best of all worlds.”

DC Owners Ken Block and Damon Way (both drinking Coronas) were soft spoken with their remarks, and Way added, “This deal represents a new paradigm in action sports.”

Danny Way (who owns a small percentage of the DC) added: “Of any company to acquire DC, Quiksilver is the best.”

Then Sellstrom and Bussiere proceeded to call up each of the DC VP’s and present them with bottles of Cristal champagne. When the final toast was announced, balloons dropped from the ceiling, the crowd clapped and cheered enthusiastically, and the ceremony was officially over. A lot of back-slapping and high fives were passed around the room afterward, and the crew seemed glad it was over.

Although both groups have agreed to the purchase, it still has to be okayed by the SEC, and won’t actually close until Quiksilver’s third quarter.

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One of the reason’s given for the rush to get the deal done was that Quiksilver wanted to finish the deal before it released its first quarter earnings (happening March 10.). (Quiksilver’s stock price on Monday, March 8 when the deal was done was approximately $19 a share. The day after the deal, it was approaching $21, and would no doubt be higher after the quarterly report in the afternoon.)

According to sources at DC, they began looking to refinance the company last fall, and part of that process was to look for a potential buyer. By late January, Quiksilver entered into the scene and the deal was on.

Interestingly, DC had meetings with Quiksilver back in 1999, but both sides agreed that it wasn’t the right time for things to happen.

During a conference call on the afternoon of March 8 when the deal was announced, Quiksilver CFO Steven Brink said the deal would be funded with current stock and with a new line of credit.

During the call, the Quiksilver management team also discussed future plans for DC, which included keeping the company right where it is in Vista, California and pretty much leaving them alone. They pointed out that synergies could be had with the DC team helping Quiksilver’s footwear efforts, and conversely by Quiksilver helping DC with its apparel program. Brink reiterated that Quiksilver would not attempt to change DC’s brand identity.

Part of the deal involving an additional payout of $57-million paid over four years if DC reaches certain performance tagets. This essentially locks in the current DC management, and it’s their passion for the brand which made them particularly attractive to Quiksilver to begin with.

If Quiksilver’s purchase of snowboard builder Mervin Manufacturing several years ago is any indication, Quiksilver’s management is good at not getting too involved with the new purchasee’s day-to-day management. In fact, Mervin management has been totally stoked with the deal they did, and feel like they’ve been left alone to manufacture and market their snowboard brands including Lib Tech, Gnu, and Bent Metal to the best of their ability.

As Quiksilver pushes to grow even bigger, other purchases like this are probably in the future, although none are in the works right now, sources say.

Notes:

According to the conference call, DC had sales of approximately $100-million last year. It has doubled in size over the last four years.

According to Quiksilver’s 2003 annual report, the company had revenues of:

$975-million in 2003

$705-million in 2002

$621-million in 2001

$519-million in 2000

58% of Quiksilver’s business is with the Quiksilver name.

32% is Roxy.

10% is other brands.

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