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31-05-2012 22:24:00

2nd UPDATE: Nike To Divest Cole Haan, Umbro Brands

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--Plan to sell Cole Haan and Umbro comes as Nike is in the midst of a strong athletic-footwear cycle

--Umbro and Cole Haan make up a relatively small portion of Nike's total business

--Sterne Agee views a narrow portfolio positively, but doesn't expect Nike to sell off other businesses

(Updates with additional analyst commentary, beginning in the ninth paragraph, and closing stock quote in the final paragraph.)

By John Kell


NEW YORK (Dow Jones)--Nike Inc. (NKE) said it plans to shed its Cole Haan and Umbro brands, its first planned divestitures in roughly four years, as the athletic-gear maker focuses more on its namesake and other brands.

Financial terms and potential buyers weren't named, though the divestiture process will begin immediately and is expected to be completed by June 2013, Nike said.

Nike said it sees greater potential to speed up profit growth through the namesake brand, as well as through the popular Jordan, Converse and Hurley brands. The planned sale comes as Nike is in the midst of a strong athletic-footwear cycle and as new product launches such as the Nike+ FuelBand have helped the company remain relevant as consumers are cautious about spending.

Cole Haan, which specializes in casual- and dress-leather shoes and bags, was acquired by Nike in 1988 for $80 million, plus the assumption of $15 million in debt. The company bought soccer gear and apparel company Umbro in 2008 for $565 million. In fiscal 2009, Nike took a $401 million impairment charge to reduce the carrying value of Umbro's assets, as projected future cash flows fell below the level Nike expected at the time of the acquisition.

Umbro and Cole Haan make up a relatively small portion of Nike. Both brands are listed under the company's "other businesses" along with Hurley, Nike Golf and Converse, with that category contributing roughly 13% of Nike's $17.7 billion in sales for the first nine months of the latest fiscal year.

Analysts, already overwhelmingly sanguine about the company due to excitement about growth opportunities in China and a strong presence in high-end athletic footwear, said the move indicates management believes Nike doesn't need to make acquisitions or develop side brands to expand.

Some argued it can be hard to cultivate smaller brands in a company as large as Nike, as the best designing and marketing talent would often be drawn to high-profile brands like Jordan. That would make it more difficult for tinier names to differentiate with consumers.

Of the two brands being sold, Umbro has more natural synergies with Nike's core business than Cole Haan, which is more of a fashion play. The planned sale of Umbro suggests to some that Nike believes the namesake soccer line is well positioned to court consumers.

Citi analyst Kate McShane speculated Umbro, which she estimated generates roughly $224 million in annual sales, could be a good fit for Dick's Sporting Goods Inc. (DKS), as the retailer already has an exclusive license for the brand.

For Cole Haan, McShane said potential buyers could include Wolverine World Wide Inc. (WWW) and VF Corp. (VFC), as both have track records for acquiring companies. Shoe maker Wolverine, along with a pair of private-equity firms, agreed earlier this month to pay roughly $1.32 billion to buy Collective Brands Inc. (PSS) while VF last year spent roughly $2 billion to buy Timberland Co.

Nike wouldn't comment on speculation as to which firms would be interested in acquiring the brands, while representatives from Wolverine, VF and Dick's weren't immediately available to comment.

McShane added that one twist to selling off Cole Haan, which generates an estimated $518 million in annual sales, revolves around the amount of proprietary technology Nike has infused in the brand over the years. She questioned how Nike could approach this subject with a potential buyer.

Nike last unloaded an individual brand, Bauer Hockey, in April 2008. That was shortly after it sold off discount line Starter in late 2007.

Sterne Agee analyst Sam Poser said he doesn't expect Nike to sell off any other businesses, saying Hurley gives the company exposure to the surf-and-skate community while calling the acquisition of Converse a success. He also views a narrow portfolio positively.

"I think in this environment focus is key, regardless of who you are and how big you are," Poser said.

Nike's shares closed down seven cents Thursday at $108.18 a share. The stock has jumped 28% in the past year.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

--Kristin Jones contributed to this article.

(END) Dow Jones Newswires

May 31, 2012 16:24 ET (20:24 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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