(Reuters) - French retailer and luxury goods giant PPR (PRTP.PA) is to buy surfing-inspired clothing firm Volcom (VLCM.O) for $607.5 million, making good on its promise to recentre its operations on sports and lifestyle brands.
PPR, which already controls the German sports brand Puma, will make a tender offer to acquire all outstanding Volcom shares for $24.50 a share, a 37 percent premium over their three-month average trading price, it announced on Monday.
The deal marks the latest step in Chief Executive Francois-Henri Pinault's strategy of spending some of the 2.4 billion euros raised from selling African distribution business CFAO and French furniture retailer Conforama.
The group is still looking for buyers for its catalog business Redcats and books and electronics retailer FNAC whose first-quarter sales disappointed investors.
PPR also owns fashion houses Gucci, Balenciaga and Alexander McQueen, whose creative director Sarah Burton designed the Duchess of Cambridge, Catherine Middleton's, wedding dress.
Described by Pinault on Monday as "one of the world's most desirable global action sports brands," Volcom, created in 1991, is identified with California snowboard and skate culture.
The company's T-shirts, hooded sweatshirts and other clothes are sold by major retailers and some 13 stores in the United States.
Some Volcom directors and officers, who own 14.4 percent of the outstanding shares, have already agreed to tender their shares and the company's board has recommended that other shareholders do the same.
The deal is expected to close in the third quarter.
"The market should be somewhat reassured by the limited size of the acquisition which should ease off part of the perceived acquisition risk of PPR," Exane BNP Paribas said about the deal.
Pinault told the Financial Times in an interview in Monday's edition that PPR would use the sales proceeds to pay off debt and make small to medium-sized acquisitions.
"If you buy something that is already big, it is very difficult to offset the acquisition premium," he told the paper.
Volcom last year made a net profit of $22.3 million on revenue up 14 percent at $323.2 million.
Two thirds of its sales come from the United States with Europe its second-biggest market.
PPR said in a conference call on Monday it aimed to lift Volcom's operating margin above the 19 percent reached in 2007, a year marked by license repurchases. In 2010 its margin was 9.4 percent.
Volcom shares have fallen 17 percent in the last 12 months as the company struggled with rising raw material costs.
"Volcom is a good brand that has suffered from growing pains," KeyBanc analyst Edward Yruma said.
"Its acquisition by PPR makes sense as PPR can give Volcom a strong sourcing and distribution infrastructure - two key areas that have contributed to its poor recent performance."
PPR's finance director Jean-Francois Palus said he expected Volcom to start lifting the group's earnings next year but many analysts expect the impact to be negligible.
Some estimated that Volcom would account for less than 2 percent of PPR's 2011 sales.
"In terms of the business, Volcom is very complementary to Puma, but
While the price appeared to be high at some 27 times 2010 net income -- the high end of the sports retail sector average -- some analysts said it was justified by the brand's solid growth prospects and good match with other PPR brands.
PPR shares last traded on Monday down 0.1 percent at 120.6 euros. (Additional reporting by Pascale Denis in Paris and Nivedita Bhattacharjee in Bangalore; Editing by Jon Loades-Carter, Greg Mahlich)