If the shoe fits

Timberland woos SmartWool

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— SmartWool and Timberland began courting earlier this year, almost without realizing it. On Monday, Timberland reached an agreement to purchase SmartWool, and the romance became official.

Timberland, with more than $1.5 billion in annual revenues, bought Steamboat Springs-based SmartWool for $82 million.

SmartWool had revenue of about $42 million in 2004. The bulk is attributable to its high-quality socks tailored to the outdoor sports and casual wear markets.

SmartWool President Chip Coe this week said the acquisition would bring about a marriage of corporate philosophies that have a great deal in common.

"We just have such a shared corporate culture," Coe said. "Timberland is a company that has high standards in terms of corporate responsibility, social responsibility and employee welfare."

Coe said Timberland had no intention of moving SmartWool from Steamboat Springs and valued having a subsidiary in the city where it began.

"They love the fact that we give them a Western presence," Coe said. "We've already begun employee exchanges -- we hosted some of their designers for a week, and some of our people will be visiting New England. (Timberland) made it a condition of the deal that our current management team stay together."

SmartWool is best known for its lines of socks made exclusively from soft Merino wool. However, its wool clothing lines are much broader than just socks. Timberland, originally a manufacturer of waterproof leather field boots with origins going back to 1918 in Boston, has become a publicly traded giant of the outdoor clothing industry. It has offices in Europe and Asia in addition to corporate headquarters in Stratham, N.H., a town of about 7,000 people 50 miles north of Boston.

In addition to footwear, the Timberland Company markets casual clothing through independent retailers and corporate stores.

Timberland reported 2.4 percent sales growth in the third quarter, the bulk from international sales,

according to industry analysts. The company has more than 200 company and franchise retail outlets around the globe. Like many retailers, Timberland will hope for robust sales in the fourth quarter to improve on last quarter's modest growth.

The companies began working together early this year to bring out a new line of Timberland shoes and clogs known as the Power Lounger. They feature SmartWool linings, and although they just reached retail outlets in August, some lines are sold out, Coe said.

"It's a program that has already become immensely successful," Coe said.

The benefits of an alignment with Timberland became apparent to SmartWool's team with a print advertising campaign for the Power Loungers. The business arrangement called for Timberland to make the media buy, which was far larger than SmartWool alone would have undertaken. Timberland's ad agency collaborated with SmartWool's creative agency to produce ads that prominently feature the SmartWool logo. The ads are running in magazines including RollingStone, Sports Illustrated, Details, Men's Fitness, Bicycling, National Geographic, Cargo and ESPN the Magazine.

Coincidental to its partnership with Timberland on the Power Lounger, SmartWool's team was noticing increasing interest from larger companies making purchase overtures.

"During a span of two years, four or five larger companies approached us," Coe said. "Internally, we call them fly-bys."

After giving a standard response of "Thanks, we're flattered, but no thanks," members of SmartWool's board decided in April to be more open minded and pay more attention to suitors.

Philadelphia-based RAF Industries and Stripes Group LLC own SmartWool. RAF is a holding company with concentrations in small industrial companies and companies in the gift-manufacturing field. Stripes Group acquires entrepreneurial companies and helps them sharpen their execution.

RAF acquired majority ownership of SmartWool from founders Peter and Patty Duke of Steamboat Springs in 1995 and purchased their remaining shares in January 2003.

Coe said RAF would have been content to continue owning SmartWool, but the increasing number of fly-bys led it to retain investment-banking firm Wachovia Securities to explore interest among would-be buyers. However, instead of simply putting out the word that the company was for sale and entertaining all comers, SmartWool asked Wachovia, which has depth of experience in outdoor-related companies, to approach 10 firms to inquire about their interest. RAF and Stripes Group were interested in selling only if they could find a fit with a company that shared strategic goals with SmartWool and for the targeted selling price, Coe said.

SmartWool's owners and top executives didn't want to disrupt their team with the distractions of a wide-open sale process. Right until the finalists among the would-be buyers began making site visits, no more than three employees at SmartWool were aware of the process.

Of the initial 10 companies approached by Wachovia, half said "No thanks," Coe said. Of the 50 percent who said "Maybe," three or four were chosen for more formal presentations in which company finances were discussed.

Timberland was among the finalists, and that's when executives of the companies realized they had already been dating.

Executives from both companies had hosted industry receptions for the Power Loungers at trade shows and come to know of each other and their corporate philosophies.

SmartWool employs more than 50 people in Steamboat Springs, Coe said, and the acquisition by Timberland is likely to increase that number, even in departments where the larger company is likely to lend expertise through its staff in New Hampshire.

"We're a separate corporation owned by Timberland," Coe said. "They'll help us in areas like information technology, product development, human resources and accounting.

"We're just in the process of finalizing our 2006 budget. I have zero doubt we'll ad staff in 2006. We've put together a wish list, it remains to be finalized."

When the sale closes, Coe will report to Timberland Senior Vice President Gary Smith, general manager of the company's outdoor performance group.

Coe said Timberland has not sent any directives to SmartWool other than one important charge.

"The only mandate that has come down is to inform SmartWool's management team that we are the keepers of the brand flame, and we are to protect the brand whenever the winds blow," Coe said.

-- To reach Tom Ross, call 871-4205 or e-mail tross@steamboatpilot.com

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