After the Lillian Vernon Sale, the Turnaround

Jun 01, 2003 9:30 PM  By

When Rye, NY-based gifts and housewares cataloger Lillian Vernon Corp. agreed on April 16 to be sold, Lillianmania swept the New York area. Multiple articles discussing the deal and celebrating founder Vernon appeared in The New York Times, The Wall Street Journal, and the local newspapers. Now the buyers, a private equity fund managed by New York-based Ripplewood Holdings L.L.C. and New York-based media management firm ZelnickMedia, have to create Lillianmania among the cataloger’s customers.

The deal, which is expected to close on July 31, allows Vernon to retain a 5% ownership of the company she founded. ZelnickMedia will own a minority share, and Ripplewood Holdings will be the majority owner. Upon completion of the deal, Lillian Vernon Corp. will become a private company. The approximately $60 million purchase price — at $7.25 per share in cash — represents a 73% premium over the $4.20 closing market price of the common stock on April 15.

Some in the industry were surprised that Lillian Vernon fetched as high a price as it did. A source who requested anonymity tells Catalog Age that the board of directors had received multiple bids at prices considerably lower than that offered by Ripplewood and ZelnickMedia.

Lillian Vernon by the Numbers
FISCAL YEAR ENDED REVENUE NET INCOME (LOSS)
Feb. 23, 2002 $259.6 million ($9.1 million)
Feb. 24, 2001 $287.1 million ($1.4 million)
Feb. 26, 2000 $281.0 million $6.3 million

The medium is the message

The sale “was a logical progression for our company given that in the past, this was a family business,” says Lillian Vernon spokesperson David Hochberg, who is Vernon’s son. “But my brother, Fred [formerly president/chief operating officer], left the business to go into politics in 1993, and I’ve never had an interest to take over the company. Lillian is 75 and has a plan for the future of the business, so the brand will endure forever.”

Or so the new owners hope. ZelnickMedia principal Strauss Zelnick refers to the $259.6 million cataloger, which lost $9.1 million during the fiscal year ended Feb. 23, 2002, as being in need of a turnaround. “It’s a beloved company that’s lost money over the past few years, so we want to return it to profitability as soon as possible while also increasing revenue,” he says.

Zelnick adds that he has experience with such situations: In the 1990s, he helped turn around BMG Music’s direct marketing arm. His firm also manages a Japanese music company, Columbia Music Entertainment, for Ripplewood.

To those who point out that catalog operations differ significantly from media operations, Zelnick says: “We see direct marketing as media. Lillian Vernon is an extraordinary brand that appeals to all of America — particularly women. We think there are a lot of extension opportunities to other media, such as home shopping on TV and expanding its Web presence.”

Founder Vernon says she’s ready to tout the company and its wares on home-shopping television. And Larry West, president of New York-based investment bank West Cos., declares that Zelnick gets a “wonderful spokesperson” in Vernon. He adds, “If I were them, I’d sure try to find a way to capitalize having her sit in and opine in final merchandise selection meetings and get her opinion.”

Like Zelnick, Ripplewood is making its first investment in the catalog business — but this won’t be its last, says managing director Jeff Hendren. “Cataloging and direct marketing are still growing, still healthy,” he says. “Lillian is a well-known, well-recognized institution in this industry, so it’s a place for us to start.” Hendren says future catalog deals will have the same platform, with ZelnickMedia as Ripplewood’s “entrepreneur in residence” to oversee day-to-day operations.
Additional reporting by Mark Del Franco