Sharkey’s Machine


Clinging to a Ledge: Crisis within TNF

The North Face underwent a tumultuous time in 1999. The company was under attack by its CEO in his attempts to take The North Face private. James Fifield and his leverage-buyout-firm, Fifield and Leonard Green and Partners, attempted to buy the controlling majority of TNF at $17 and remove the company from public trading. The buyout was denied by shareholders who felt the price per share was undervalued. Just a few days after the buy-out proposal was announced TNF disclosed that it may have misrepresented its 1997 and 1998 financial statements. The company eventually divulged that it had overstated 1998 sales by $16 million, or 6%, and earnings by $6 million, or 42%. The adjusted sales for 1998 where $247 million dollars, with $8 million in profit. The company also said that 1997 sales had been overstated by $5 million and earnings by dilated $3 million. The preponderance of accounting irregularities by TNF impelled shareholders to bring about class action lawsuits against the company claiming that it had purposely exaggerated its financial fillings in order to drive up share price.  Amongst all of the turmoil the CEO James Fifield left the company and TNF faced Chapter 11 bankruptcy. It was then, that VF Corporation swopped in and acquired the fledgling outfitter. The VF Corp purchased The North Face for $24.5 million in 2000. The nation’s largest apparel provider purchased TNF at a substantial discount (90%) of its yearly sales ($240 million). The North Face would go on to post losses $100 million on $238 million in sales in 1999. However over the next few years with VF Corps influx of capital and restructuring its business functions, The North Face returned to profitability. In 2003 the company showed a 34% growth and a 61% growth in 2004 cementing itself as the cornerstone of the VF Corps outdoor lifestyle sector.

The North Face was able to overcome financial and leadership crisis by yielding to a company that had a proven track record in apparel manufacturing and distribution. The VF Corporation not only had the capital to bail out TNF, but it also had the expertise and managerial skills to reorganize the operational structure of TNF to get it back not only to sustainability but to profitability. The acquisition of TNF was somewhat opportunistic and predatory, but it has proved to be mutually beneficial to both organizations.

 

 

References:
 
Boyd, K. (2008). The North Face Apparel Corp.. Retrieved October 26, 2008, from Answers.com Web site: http://www.answers.com/topic/the-north-face-inc
 
Kapner, S. (2008, March 14). How Fashion’s VF Superchargers its Brands. Fortune, [157(7)], [108-110].

Morris, K. (1999, June 21). Egg All Over North Face. Business Week, online.

Peltz, J. Jeans Giant VF to Buy Outdoor Gear Maker. (2000, April 08). Los Angeles Times, p. C1.