Investment firm TD Cowen has reduced its rating on Skechers (NYSE:SKX) from a positive recommendation to neutral positioning this Wednesday, citing the elimination of opportunities for alternative acquisition proposals after 3G Capital’s takeover announcement.
“We are downgrading to Hold as the window for another bidder for Skechers to emerge has closed,” the analysts wrote.
The acquisition proposal of $63 per share from 3G Capital represents a multiple of 13.5 times TD Cowen’s projected earnings per share for fiscal 2027 and 6 times the estimated enterprise value-to-EBITDA ratio for the same period. While these metrics match the investment firm’s previous valuation target, they don’t reach the upper end of their optimistic projections.
“Sector valuation is +24% from April lows and now in line with 10 and 5 yr median P/E, awaiting more trade deals,” the analysts noted.
According to TD Cowen’s assessment, this transaction represents the “largest deal in Softlines Retail sector history,” significantly surpassing the $2.5 billion Reebok transaction, and characterizes it as “opportunistic investing in the sector during a time of uncertainty.”
The transaction features an unusual payment structure where stockholders can choose between receiving $63 in cash or $57 in cash combined with one LLC unit, subject to proration adjustments.
“Insiders owned roughly 14% of the shares pre-deal,” TD Cowen said, positioning them to receive more than $1.3 billion from the transaction.
The research team indicates that company leadership may retain a “sizable ownership position” based on how shareholders exercise their payment options.
For future prospects, TD Cowen anticipates 3G Capital will focus on improving profit margins through operational cost reductions and enhanced efficiency measures, which could potentially result in Skechers returning to public markets at a later date.
However, immediate challenges persist: “Capex as a % of sales is reaching all-time highs,” while the company’s operational approach remains “heavy on distribution growth and working capital needs.”