Last Monday, V.F. Corporation (A3 stable) said that it had agreed to acquire global workwear company Williamson-Dickie Mfg. Co. (Dickies, unrated) for $820 million in cash. The planned transaction, which VF expects to close in the fourth quarter, is strategically sound but credit negative because it will increase leverage by more aggressively using short-term debt. Following the deal’s announcement, we affirmed VF’s A3 senior unsecured rating and Prime-2 commercial paper rating; the outlook remains stable.。    We expect commercial paper borrowings to source most of the funding for the acquisition. As a result, lease-adjusted leverage will increase to around 2.5x upon closing from 2.2x for the 12 months that ended 1 July (see exhibit). However, we expect the company to suspend share repurchases and focus on rapid debt repayment using strong fourth-quarter free cash flow, bringing leverage below 2.0x by the end of 2018. As VF demonstrated following its 2011 purchase of Timberland, the company has the ability and willingness to repay debt and restore strong credit metrics after completing debt-financed acquisitions.。    The acquisition of Dickies will be highly complementary to VF’s existing workwear portfolio, doubling its size to about $1.7 billion in sales and providing greater scale in a more stable, less fashion-sensitive area of apparel and footwear. Dickies will provide VF with access to new end markets, such as healthcare and services, increase direct-to-consumer and international sales and enhance its branded lifestyle appeal.。    VF says the planned Dickies acquisition will be immediately accretive to 2017 earnings and cash flow. The company also expects to reap meaningful synergies by integrating Dickies into its international and business-to-consumer platforms. We believe the company will be able to successfully integrate the business, achieve expected synergies and expand operating margins.。    As part of its strategy to reshape its portfolio, VF has been actively divesting businesses and pursuing acquisitions. In May, the company completed the sale of its Licensed Sports Group business to Fanatics Inc. for an undisclosed price. We believe VF will continue to consider other acquisition and divestiture opportunities.。

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