Rye, NY-based gifts and housewares cataloger Lillian Vernon Corp. (Amex: LVC) agreed to be sold on April 16. A private equity fund managed by New York-based Ripplewood Holdings will be the majority owner; New York-based media management firm ZelnickMedia will own a minority share; and founder Lillian Vernon will retain a 5% ownership of the company. Upon completion of the deal, which is expected by July 31, Lillian Vernon 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 company’s common stock on April 15.
“This was a logical progression for our company, given that in the past this was a family business,” says spokesperson David Hochberg, who is Vernon’s son. “But my brother, Fred, 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.”
ZelnickMedia principal Strauss Zelnick refers to the situation facing the $259.6 million Lillian Vernon, which posted a $15.1 million loss for its fiscal year ended May 2002, as 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. In the 1990s, Zelnick helped turn around BMG Music’s direct marketing arm.
As for Zelnick’s firm, which manages Japanese independent music company Columbia Music Entertainment for Ripplewood, Lillian Vernon represents a logical entrée into the catalog business. “We see direct marketing as media,” Zelnick says. “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, [the latter of] which already makes up 25% of its revenue but costs substantially less in fulfillment.”
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 “enrepreneur in residence,” as Hendren puts it, to oversee day-to-day operations.
Currently the chairman of the board, Vernon will become nonexecutive chairman and spokesperson of the company once the deal is completed. Zelnick will become executive chairman.
The 52-year-old company produces seven catalogs, including Lilly’s Kids, Christmas Memories, Personalized Gifts, and Rue de France. The company also sells its products in the business-to-business market and through outlet stores.