Harry and David head to Wall Street

Harry and David are hitting the Street. The Medford, OR-based parent company of the food gifts cataloger/retailer and horticultural merchant Jackson & Perkins in early August filed for a proposed initial public offering of common stock in an effort to raise $125 million, according to filings with the Securities & Exchange Commission (SEC).

Parent company Harry and David Holdings, formerly known as Bear Creek Corp., did not return calls at press time. According to published reports, the $561.8 million company intends to list its stock on the New York Stock Exchange under the symbol HND. UBS Investment Bank will be the lead underwriter of the offering, alongside Banc of America Securities and Calyon Securities.

Harry and David will use proceeds of the offering to redeem up to $85.8 million in high-interest notes issued in February. The remaining cash will fund growth initiatives, which include expanding its wholesale and direct-to-business sales. The company also hopes to boost the performance of Jackson & Perkins, whose sales slid 9% during the fiscal year ended in March, to $72.9 million.

Former parent company Yamanouchi Pharmaceutical Co. had sold Bear Creek Corp. in June 2004 in a leveraged buyout led by Wasserstein & Co. and Highfields Capital Management. The price was $260 million, or nearly eight times earnings. (An affiliate of Wasserstein, U.S. Equity Partners, last month agreed to buy Multichannel Merchant parent Primedia Business.)

According to the SEC filings, the buyout led to cost-cutting measures and layoffs of about 60 administrative staff in August 2004; Harry and David eliminated another 35 unfilled positions. While total sales rose 8% last year, Harry and David posted a $3.9 million loss last year due to costs associated with the buyout.

“This is a classic example of a leveraged buyout. The IPO is the second phase, where Wasserstein can pay off the debt,” says Stephen Oakes, managing director for New York-based investment bank Bentley Associates.

Generally, it’s less expensive to raise equity publicly rather than privately, adds Mal Appelbaum, president of New York-based financial consultancy Appletree Advisors. One drawback, however, is the “lock-up period” — about three months, in most cases — during which the company cannot sell back its own stock. There are also restrictions on the volume of stock it can sell thereafter. “So in that case,” Appelbaum says, “a private equity investor would seek a secondary offering.”

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