Heads up, fashion fans. Clog maker Crocs (NASDAQ:CROX) announced this morning that it would be buying footwear brand Hey Dude for $2.5 billion. Hey Dude is a private business that is expected to bring in $570 million in revenue this year. The company was founded in 2008 by entrepreneur Alessandro Rosano in Italy. Additionally, the footwear brand makes casual and comfortable shoes for men, women and children. The shoes are priced relatively low, as most pairs can be bought for less than $80. Despite this seemingly good news, CROX stock is down more than 12% on the day at the time of writing.
So, why exactly is CROX stock down today?
Well, this acquisition will see Crocs use $2.05 billion in cash from a term loan and $450 million in CROX stock to complete the transaction. As with most acquisitions, the buyer’s stock price usually goes down because they are using assets or debt to fund the transaction.
Hey Dude has a heavy e-commerce presence. The footwear brand brings in about 43% of its sales online. On the other hand, Crocs brings in about 37% of its sales through e-commerce. As a result, the acquisition may provide e-commerce synergies for the two footwear brands.
Hey Dude will operate as a standalone entity after the completion of the acquisition. Furthermore, the transaction will likely close during the first quarter of 2022.
How Does Wall Street Feel About the CROX Stock Acquisition?
Investment firm Piper Sandler remains bullish on Crocs’ prospects after the acquisition. Analyst Erinn Murphy believes that “shares are mispriced this morning.” Murphy also explained that the reason for CROX stock’s decline this morning was because HeyDude is a little-known brand. However, she mentioned “Hey Dude was the No. 8 preferred footwear brand for teens this fall — up from No. 54 two years ago” in Piper’s “Taking Stock With Teens” survey. Furthermore, Murphy predicts that the acquisition could potentially add over $1 to earnings per share during fiscal year 2022.
Additionally, bearish news from Moody’s may be contributing to Crocs’ decline today. The credit-rating firm placed Crocs’ credit ratings on review for downgrade. The reason for the review on downgrade is due to “governance considerations which include Crocs’ planned acquisition of Hey Dude for a purchase price of approximately $2.5 billion and the expectation that Crocs will use debt to fund over 80% of the transaction cost.” During the review, Moody’s will focus on factors like Crocs’ revolving credit facility, supply chain issues and future governance considerations.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
