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Tropical gets a leg up on competition

Published Sep. 13, 2005

Tropical Sportswear International Corp. is buying Farah Inc. for $92.7-million, more than doubling the size of the apparel company while adding to its wardrobe brand-name labels such as Farah, John Henry and the fast-growing Savane.

It puts Tropical in contention with Haggar Clothing Co. as the third-largest pantsmaker in the country.

Even more important, it gives the Tampa company its first international offices in Europe and greatly bolsters access to retailers such as Federated Department Stores, Dillard Department Stores and Sears, Roebuck & Co.

"We've had a deal like this in the business plan since we bought Tropical in 1989," said Bill Compton, chairman of Tropical Sportswear and a former president of Farah in El Paso, Texas. "This will take us up toward $500-million (in sales) by the year 2000 and that was our long-term goal."

Under the agreement expected to close by June, Tropical is paying $9 a share for each of the 10.3-million outstanding shares of Farah common stock.

As a wholly owned subsidiary, Farah will keep its El Paso headquarters, and two of its officers will join Tropical's board.

Compton, who will remain chairman and CEO of the combined company, said some layoffs are anticipated. He would not be specific except to say the majority of operations will stay in place.

Compton said his 18-year career with Farah and familiarity with its leaders helped expedite talks and the necessary due diligence checks. But the smaller company wouldn't have ended up buying the bigger one, he added, unless it made strong economic sense for both.

"It's a big gulp. No question," said Lee Backus, an analyst at Buckingham Research Group in New York who follows the apparel industry. "But I think they've got the tools to work this out at Tropical."

Tropical last year had $8.3-million profit on $151.7-million in sales; Farah eeked out a $270,000 profit on $273.7-million in sales.

Analysts say Farah's financial problems do not lie with its labels. The cotton casual Savane brand has been popular at Dillard's, while John Henry is doing well at Sears and Farah at Wal-Mart.

Rather, the company was buffeted from the inside last year by the troubled startup of a distribution facility, by poor quality of some fabric and by troubles with a washing operation in Mexico.

"They basically felt that they didn't have the management team or the financial wherewithal to get the most out of their position in the marketplace," Backus said. "With the consolidation going on in both the retail and wholesale industry, they decided they needed to be part of a larger company."

The combined company should be better able to compete with industry giant Levi Strauss and other apparel companies capitalizing on the workplace movement toward casual clothes.

Tropical's immediate mission with Farah is clear: seek more space in department stores to market Savane and other strong sellers while imposing Tropical's operating discipline on the new subsidiary.

"We hope to bring down the bottom line for them," Compton said.

In return, Farah will help transform Tropical into an international player.

Only 40 of Tropical's 800 employees are outside the United States; it contracts for most of its manufacturing in Mexico and Costa Rica. Outside the United States, it sells only in Mexico, parts of South America and Canada.

By contrast, only half of Farah's 3,000 employees are in the United States. The apparelmaker has international divisions in the United Kingdom and Australia, manufacturing in Mexico, and importing operations in Asia and the Middle East.

Eventually, Compton said he envisions the merged company developing into two operations, with the Farah unit focused on brand names and Tropical focused on private label.

Tropical first started talking to Farah late last fall, shortly after Tropical went public and before Farah publicly confirmed that it was looking at options such as a sale to boost shareholder value.


Tropical Sportswear International Corp.

WHAT IT DOES: Makes men's and women's sportswear, including pants, jeans, shorts and shirts. Lines include Bill Blass and Phillips Van Heusen.

WHERE: Tampa


1997 REVENUES: $151.7-million

1997 NET INCOME: $8.27-million


STOCK PRICE: $17.50, up $1.50

52-WEEK RANGE: $9.75-$17.50

Farah Inc.

WHAT IT DOES: Makes men's and boys' pants, coats and shirts and women's slacks with retail customers in the United States, Europe and South Pacific. Lines include Savane, John Henry and Farah.

WHERE: El Paso, Texas


1997 REVENUES: $273.7-million

1997 NET INCOME: $270,000


CLOSE: $8.81\, up $2.06

52-WEEK RANGE: $4.75-$10

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