Pentland Group plc

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Pentland Group plc

The Pentland Centre
Lakeside
Squires Lane
Finchley
London, Greater London N3 2QL
United Kingdom
44 181 346 2600
Fax: 44 181 346 2700
Web sites: http://www.world-of-speedo.com http://www.ellesse.com

Public Company
Founded: 1936
Employees: 6,969
Sales: £889.6 million (US$1.3 billion)
Stock Exchanges: London
SICs: 5139 Footwear; 5136 Men’s and Boy’s Clothing; 5137 Women’s and Children’s Clothing; 5112 Stationery and Office Supplies; 5064 Electrical Appliances, TV & Radios

The Pentland Group plc owns and licenses some of the world’s best-known shoe and sporting goods brands, including Speedo swimsuits; Ellesse and Berghaus sportswear; Mitre soccer balls; and Pony, Lacoste, Kickers, and KangaRoos footwear. The company also sells Red or Dead designer apparel, Grazia brand clothing, and several brands of fashion footwear. Throughout its first 50 years in business, Pentland was a relatively obscure manufacturer of mostly private-label shoes sold in Great Britain. The company catapulted onto the global stage in the early 1980s via its role in the development and success of Reebok brand athletic shoes. Pentland made a vital investment in the then-struggling U.S. licensee of the brand in the early 1980s and helped guide its explosive growth during the decade, later divesting its stake in the multibillion-dollar firm. A subsequent series of rapid-fire acquisitions in the early 1990s formed a family of prestige sporting goods labels. Chairman R. Stephen Rubin, who took Pentland’s helm in 1969, continued to own a majority interest in the publicly-traded company into the late 1990s.

Founded in 1930s

Pentland’s origins stretch back to 1932, when Berko and Minnie Rubin established the Liverpool Shoe Co. to sell footwear to Britain’s retail chains. A 1973 article on the company credited the business’s early success to its founders’ “extraordinarily good sense of what would sell.” From a base capital of £100, Liverpool Shoe incorporated in 1936 and purchased its first manufacturing operation, Merry well Shoes, in 1946. Liverpool Shoe continued to grow via acquisition throughout the postwar era, purchasing both Dines Shoes Ltd. and Batson and Webster Ltd. in 1962 and John F. Kirby Ltd. in 1963 before going public in 1964. Though the shares were in high demand—the floatation was oversubscribed 97 times—the Rubin family retained a majority interest in the firm.

Liverpool Shoe was by this time manufacturing a wide variety of footwear, from formal to athletic, men’s, ladies’, and children’s. The company’s “Beatle boots” were a big hit in the 1960s, and the 1965 acquisitions of Wareings Ltd. and Wesco Footwear Ltd. continued to boost the company’s domestic manufacturing capabilities. But the firm began to suffer under pressure from rising imports during the latter years of the decade, incurring losses from 1967 to 1971. These difficulties were exacerbated by the untimely death of the founder in 1969 at the age of 56. Thirty-one-year-old son R. Stephen Rubin took the helm that year and undertook a restructuring and diversification in the hopes of revitalizing the business.

Second Generation Brings Diversification in 1970s

Trained as a barrister, Rubin had started out at the family company in sales, but quickly proved himself a savvy investment manager. While continuing to support the shoe business, he began in the early 1970s to shape the company into something of a venture capital firm. Rubin acquired Pentland Maritime Shipbrokers Ltd. in 1971 and while the resulting amalgamation would never be known for its shipping interests, he changed the company name to Pentland Industries Ltd. two years later. In 1973, Rubin launched Pentland Shipping Services Ltd. and Pentland Insurance Brokers Ltd. The company made its first venture capital-type investment in 1974, when it bought a 51 percent interest in Unican for a meager £51. The home-brewing and wine-making business took off, and in 1978 Pentland sold its stake to Robertson for a handsome £1 million. Pentland used the proceeds to launch its own line of skateboards, shoes, handbags, luggage, and sportswear under the Airborne brand in 1978.

In the meantime, Rubin had maintained Liverpool Shoe as a holding company for the growing conglomerate’s footwear interests. Faced with a flood of cheap shoes from the Far East, he reluctantly slashed domestic production to a single plant and set up his own Hong Kong manufacturing operation in 1969. Pentland acquired Amalgamated Shoe Company and Priestly Footwear Ltd. in 1972, and by the end of the decade had purchased the U.K. license to the Pony footwear brand as well. Over the course of his first decade in the role of chairman, Stephen Rubin had succeeded in turning his birthright from a loss-plagued shoemaker into a budding conglomerate that by 1979 had over £25 million in annual sales and more than £1 million in pre-tax profits. It was only the beginning of a string of stunning successes.

Reebok Acquisition Highlights 1980s

The most significant event of the 1980s, if not Pentland’s entire history, started with the apparently inauspicious investment of £50,000 (US$77,500) in Reebok USA Ltd. Inc. in 1981. In exchange for the capital infusion, Pentland received a 55.5 percent interest in the firm. Reebok USA was then the struggling North American licensee of J.W. Foster & Sons Inc. Established in 1895, the family-owned J.W. Foster—the world’s oldest shoe company—was then hand-making expensive running shoes for world-class athletes. American Paul Fireman had first taken note of the company’s Reebok brand shoes—named for an African gazelle—at a 1979 trade show, and garnered the North American rights to the trademark that same year. Acting as chairman of Reebok USA from 1981 to 1984, Stephen Rubin taught the company the secrets of East Asian sourcing and helped formulate a fresh, new marketing plan.

Late in 1982, the company launched the world’s first shoe designed specifically for aerobic exercise. The shoes’ bright colors and fashionable styling took the U.S. footwear market by storm. A particularly innovative feature was the use of garment or glove leather, which eliminated the need for a breaking-in period. Sales rose from US$300,000 in 1980 to US$66 million in 1984, the same year that Fireman and Pentland acquired Reebok International (and the worldwide rights to the Reebok brand) from the founding Foster family for US$700,000. By 1986, Reebok’s sales had rocketed to US$919 million, giving it a leading 34 percent share of the American athletic footwear market.

When Reebok International went public in 1985, Pentland made US$12.5 million on its sale of 14.8 percent of the company’s total equity. The value of its remaining 40.7 percent stake continued to grow throughout the rest of the decade, exceeding a half billion US dollars by the end of the 1980s. In addition to this astounding return on its initial investment, Pentland was by the mid-1980s earning “dividends”—its share of Reebok’s profits—amounting to 80 percent of Pentland’s after-tax profits. By 1990, Pentland’s sales had multiplied nearly 30 times from 1979, to £743.45 million ($1.3 billion), and its after-tax net amounted to £29.91 million (US$53.39 million).

Not content to simply sit back and enjoy the bountiful fruits of his Reebok investment, Rubin sought out new opportunities. Pentland used US$700,000 of the proceeds of the 1985 Reebok offering to acquire a 51 percent stake in Boston-based Holmes Products Corp., a manufacturer of household heating and air conditioning appliances. Aided by the launch of the “Heat Director”—promoted as “the first-ever oscillating fan heater”—Holmes’s sales more than doubled to US$12 million in 1985 and jumped to US$30 million in 1986. Other late 1980s acquisitions added real estate management, ceramic tile distribution, and refrigeration interests to the group. In 1989, a reverse takeover joined Bertrams Investment Trust PLC as well as its stationery and greeting card business to the conglomerate.

Acquisitions Pace Early 1990s

In February 1991, Rubin began a two-stage divestment of Pentland’s remaining 30.9 percent stake in Reebok, selling 18 percent of the equity back to Reebok for US$460 million. The remaining 12.9 percent went to an investment firm for US$310 million that December. Though he was rather tight-lipped at the time, Rubin would later acknowledge that “certain political differences” with Paul Fireman had helped motivate the sale. The divestment reduced Pentland’s year-over-year sales by more than half, to £340.1 million in 1991.

Company Perspectives:

Pentland Group Vision: To build the most desirable family of brands and businesses in the sports, leisure and fashion market worldwide.

Rubin was not about to let the resulting bankroll mold in a vault. Though he had—and would continue to—dabble in a variety of consumer products, the chairman increasingly targeted acquisitions in the sporting goods industry. In 1990, he purchased a significant stake in Authentic Fitness Corporation, the North American licensee of the Speedo brand. Before the year was out, he acquired an 80 percent stake in Speedo (Europe) Ltd., adding complete ownership of Speedo International and Speedo Australia early in 1991. One of the biggest names in swimwear, Speedo accounted for 65 percent of competitive (as opposed to the much larger fashion) swimsuits sold worldwide. In an effort to broaden the brand’s appeal without losing its high-performance image, Pentland carefully expanded its scope to include gear for triathletes and beach wear. Speedo’s status, and Pentland’s piecemeal strategy of acquiring it, would become a model for the company’s activities in the early 1990s.

Building upon more than a decade of ownership of the UK Pony distributorship, Pentland purchased Pony International Inc., the global shoe and sportswear subsidiary of Adidas AG, in July 1991. Two years later, Pentland took a controlling 80 percent stake in Pony USA, which was then generating about three-fourths of the brand’s worldwide sales. (The remaining 20 percent was purchased in 1995.) Rubin worked Pentland’s marketing and distribution magic on the struggling organization, repositioning the brand as a performance shoe and increasing its advertising budget. He also boosted research and development and transferred Pony’s production to Pentland’s own East Asian sources. Rubin even made a stab at acquiring former Pony parent Adidas AG in the ensuing year and a half, but abruptly pulled out of the deal with no comment late in 1992.

From 1992 through 1996, Pentland purchased controlling stakes in, or made outright purchases of, nine major sporting goods brands. In 1993, the company added UK’s Berghaus mountaineering apparel, footwear and accessories; Brasher hiking boots; and Ellesse, an Italian line of tennis and downhill ski apparel. (Pentland had been the UK’s Ellesse licensee since 1981.) Reusch, a German manufacturer of ski and goalkeeping gloves, was acquired in 1994, and another soccer-related company, ball maker Mitre International, came on board in 1995. Pentland also bought the global Lacoste license, with its famous crocodile; U.S. fashion footwear manufacturer Main Woods Inc.; and designer clothing labels Red or Dead and Moda Prima during this period.

Concentration on Sporting Goods in Mid-1990s and Beyond

In keeping with his 1997 self-characterization as “a long-term builder of brands,” Rubin committed himself and his company to an emphasis on sporting goods, including apparel, equipment and footwear, as well as sporty clothing. The company divested all of its consumer products subsidiaries save Holmes Products, the air conditioning firm, but was merely waiting for “the right opportunity” to sell this company. Having assembled a group of “next generation” brands, Rubin began to set up the infrastructure necessary to support their continued expansion. From 1995 through mid-1997, he created joint ventures to distribute Pentland brand goods to South Korea, China, Vietnam, Singapore, Malaysia, Indonesia, Argentina, and India.

Known—and sometimes criticized—for his cautious fiscal management, Rubin could not hope to duplicate the unbelievable, Reebok-fueled growth in sales and profits recorded in the 1980s. While Pentland’s revenues more than doubled, from £326.5 million in 1992 to £889.6 million in 1996, pretax net only increased by about nine percent, from £33.7 million to £36.6 million, during the period. As analyst Michael Costello had predicted to Footwear News Magazine’s James Fallon in 1992, “The value of major brands like Reebok and Nike could peak in 1996 or 1997 as their markets mature. What Pentland is doing is putting itself in a position for the next group of brand names to develop.” In 1997, it appeared that Rubin had positioned his company well. What remained to be seen was whether he would be able to capitalize on the situation.

Principal Subsidiaries

Pentland Industries Ltd.; Pentland USA Inc.; Pentland Ventures Ltd.; Berghaus Ltd.; Brasher Boot Company Ltd (75%); Ellesse International SPA (Italy); Ellesse (U.K.) Ltd.; Kangaroos International Ltd.; Kangaroos Ltd.; Mitre Sports International Ltd.; Olympico srl (Italy); Pentland Asia Pacific Ltd. (Hong Kong); Pentland Australia Pty. Ltd.; Pentland Brands Ltd; Pentland Canada Inc.; Pentland France sari; Pentland Latin America Inc.; Pentland Sports Group Inc. (U.S.A.); Pentland Sports Group Ltd.; Pony International Inc. (U.S.A.); Pony International Ltd.; Pony Sports UK Ltd.; Reusch International GmbH & Co. (Germany); Speedo Holdings BV (Netherlands); Speedo International Ltd.; Speedo Australia Pty Ltd.; Airborne Footwear Ltd.; Airborne Leisure Ltd.; LJS Inc. (U.S.A.); Luc Berjen-Paris-Lte (70%); Maine Woods Inc. (U.S.A.); Medallion Shoe Corporation (U.S.A.); Morgan & Gates Ltd.; Pentland Shoe Company Ltd.; Red or Dead Ltd. (75%); Sportsflair Ltd.; H&H Refrigeration Ltd.; Holmes Products Corp. (U.S.A.); Asco General Supplies (Far East) Ltd. (Hong Kong); Asco-Eegim (Far East) Ltd. (51%) (Hong Kong); Pentland Management Services Ltd.; Asco General Supplies Ltd.; Pentland Shipping Services Ltd.