Joe's Jeans (JOEZ) to Sell Joe’s Brand, Assets and Merge Remaining Hudson Business with RG Parent

September 9, 2015 6:35 AM EDT
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Joe's Jeans (Nasdaq: JOEZ) announced two transformative transactions. First, the Company has agreed to sell the Joe’s brand and operating assets for an aggregate purchase price of $80 million to two separate buyers, Sequential Brands Group Inc. (Nasdaq: SQBG) and Global Brands Group Holding Limited. Proceeds from the transactions will be used to retire certain outstanding indebtedness, including all indebtedness owed to the Company’s senior term loan lender. The closings of the asset sale transactions are subject to satisfaction or waiver of certain conditions, including the simultaneous closings of both asset sales. It is anticipated that the asset sale transactions will close by September 30, 2015.

Second, the Company has agreed to merge the remaining Hudson business with the parent company of Robert Graham, RG Parent LLC, a nationally-recognized fashion brand. The strategic combination of the Robert Graham and Hudson® brands will provide the foundation of a new, premium branded consumer platform that focuses on organically growing its owned brands through a global, omni-channel strategy, including premium wholesale department store and specialty stores, direct-to-consumer retail stores, ecommerce, and licensing. Additionally, the platform intends to seek opportunities to acquire accretive, complementary, premium-plus brands.

Upon the closing of the Joe’s® brand asset sale transactions, the Company will be renamed Differential Brands Group Inc. (“DBG”) and remain listed on NASDAQ. The name change signifies the transformation of these standalone businesses and the creation of a unified consumer platform. After the completion of the merger transactions, the Robert Graham equity holders will own approximately 47.3% of the Common Stock, the preferred stock owned by Tengram will be convertible into approximately 23.9% of the Common Stock, the convertible noteholders will own approximately 14.0% of the Common Stock and the existing stockholders (including the outstanding equity awards under the Company’s incentive plan) will own approximately 14.2% of the Common Stock, all on a fully diluted basis. The merger is subject to regulatory approval, as well as a vote of the Company’s stockholders on certain matters related to the merger, including a one for thirty reverse stock split, and is expected to close during the fourth quarter of 2015.

In connection with the merger, an affiliate of Tengram Capital Partners (“Tengram”), a consumer-focused private equity firm and the controlling owner of the Robert Graham business, has agreed to sponsor a recapitalization of the combined business to improve and simplify the capital structure. Tengram will purchase $50 million of new series A convertible preferred stock of the Company. Upon the closing of the Merger, the outstanding indebtedness of the Company owed to its senior revolving credit lender will be paid in full, as well as certain indebtedness to the convertible noteholders and Joe Dahan. In connection with the Merger, the holders of the Company’s outstanding convertible notes, including Peter Kim and an affiliate of Fireman Capital Partners, will exchange such notes for common stock, cash and modified convertible notes.

Michael Buckley, current Chief Executive Officer of Robert Graham, who has previous public company leadership experience at True Religion, in addition to building Diesel, and Ben Sherman, has been tapped to lead DBG as Chief Executive Officer, upon the closing of the Merger. Mr. Buckley stated, “I believe Differential is uniquely positioned to become one of the leading premium omni-channel brand platforms in the world, and I am thrilled to begin leading the company as Chief Executive Officer after the closing of the Merger.” Mr. Buckley stated, "I am excited to begin working closely with the Board of Directors, Tengram Capital Partners and each of our current and future portfolio brands in building shareholder value in the years to come.” Mr. Sweedler, Co-founder and Managing Partner of Tengram added, “Tengram is thrilled to be the lead sponsor in this transformative transaction and to have the opportunity to create a second public platform with a focused operating playbook to fuel strong growth in the foreseeable future.”

The issuance of shares and certain other transactions related to the merger will require majority approval of the Company’s stockholders at a stockholder meeting expected to be held during the fourth quarter of 2015. Joe Dahan, beneficial owner of approximately 17% of the Company’s outstanding stock, has entered into a voting agreement, pursuant to which he has agreed to vote his shares in favor of the merger.

Skadden, Arps, Slate, Meagher & Flom LLP and Piper Jaffray advised Tengram and Robert Graham on the various transactions while Akin Gump Strauss Hauer & Feld LLP and Carl Marks Securities LLC advised Joe’s Jeans Inc.

B. Riley & Co., LLC served as the exclusive financial advisor to Peter Kim and Fireman Capital Partners on all matters related to this transaction while Sullivan & Cromwell LLP provided legal counsel to Mr. Kim and McDermott Will & Emery LLP provided counsel to Fireman Capital Partners.

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