Hanesbrands Inc. (HBI)

HBI 
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Hanesbrands Inc. (HBI)

July 24, 2013 8:30 am ET

Executives

T.C. Robillard

Richard A. Noll - Chairman and Chief Executive Officer

Richard D. Moss - Chief Financial Officer

Analysts

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Omar Saad - ISI Group Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

David J. Glick - The Buckingham Research Group Incorporated

Scott D. Krasik - BB&T Capital Markets, Research Division

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Eric M. Beder - Brean Capital LLC, Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Presentation

Operator

Good morning, my name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the HanesBrands' Acquisition of Maidenform Conference Call. [Operator Instructions] I will now turn the conference over to T.C. Robillard, Vice President, Investor Relations. Please go ahead, sir.

T.C. Robillard

Thank you. Good morning, everyone, and welcome to the HanesBrands' conference call to discuss our announced acquisition of Maidenform brands. We're pleased to be here today to discuss this acquisition, and we appreciate your attendance on such short notice. Hopefully, everyone has had a chance to review the news release we issued early this morning. The news release and the audio replay of the webcast of this call can be found in the Investors section of our hanesbrands.com website.

I want to remind everyone that we may make forward-looking statements on the call today either on our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially. The audience is cautioned not to put undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to a number of uncertainties and other factors, many of which are outside the control of HanesBrands and Maidenform. The forward-looking statements that maybe discussed on this call address a variety of subjects, including, for example, the expected date of closing of the acquisition and the potential benefits of the merger. Certain factors and risks that could cause actual results to differ materially from those described in the forward-looking statements are detailed in our various filings with the SEC, such as our most recent Forms 10-K and 10-Q, and may be found on our website, in our news releases and other communications. The company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made.

With me on the call today are Rich Noll, our Chief Executive Officer, and Rick Moss, our Chief Financial Officer. For today's call, Rich will provide some brief remarks, and then we will open it up to your questions. I will now turn the call over to Rich.

Richard A. Noll

Thank you, T.C. This morning, HanesBrands achieved yet another significant milestone in using our free cash flow to create shareholder value by announcing the acquisition of Maidenform brands.

Approximately 20 months ago, we embarked on a path to maximize the value of our free cash flow. We first decided to significantly reduce our debt then to institute a dividend and, then and only then, to consider bolt-on acquisitions. We feel great about our progress as we have consistently hit each of these milestones early. This acquisition is a great way to create value for our shareholders by significantly enhancing our financials, and it's a great way to spend less than 18 months of our free cash flow. Once synergies are fully realized, we believe Maidenform should annually add over $0.5 billion to sales, $0.60 a share to earnings and $65 million to free cash flow.

On our Analyst Day in February, we laid out 4 specific criteria for acquisitions. And this acquisition solidly hits on all 4. Let me take them one at a time. First, it is in a core category. Maidenform markets a range of intimate apparel, including bras, shapewear and panties, and they have strong distribution in department stores, national chains and mass merchants, all right in our sweet spot.

Second, their business provides complementary growth opportunities. The Maidenform brand portfolio fits well with our iconic brands. They have a great average-figure bra business that complements our full-figure bra business. They are recognized for shapewear, while we have an established panty business. By applying our Innovate-to-Elevate strategy across their brands and tapping into our respective expertise, we create a combination that should benefit our consumers, our retail partners and our shareholders.

Third, there are significant synergy opportunities by leveraging our vertically integrated supply chain and eliminating duplicate stand-alone company costs. We have a proven track record for using our supply chain to create value and successfully managing transformation projects. Our ability to execute gives us confidence that we can deliver full synergies within 3 years.

And fourth, this acquisition creates great financial returns for our shareholders. At $23.50 a share, this deal has an enterprise value of approximately $575 million and is valued at approximately 9.5x their 2012 EBITDA. House synergies, we expect this multiple to drop to less than 7x. This deal is expected to deliver an after-tax IRR in the mid-teens, and we believe it is a better use of free cash flow than share buybacks. Finally, excluding acquisitions and restructuring-related costs, we expect this deal to be accretive in 2014. In terms of specifically what it may add to next year, we will defer that to next week's earnings call, where we will provide you with some line of sight on our 2014 earnings potential.

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