Payless set to acquire Stride Rite for $800m

Discounter Payless ShoeSource Inc. yesterday said it is buying Lexington shoe company Stride Rite Corp. for about $800 million as a way to grab a bigger share of the fast-growing branded and children's footwear sectors.

Stride Rite, which owns or licenses upscale footwear lines Sperry Top-Sider, Keds, and Saucony, said the business needed to join a company with bigger resources to better compete against rivals in the wake of industry consolidation. Up until now, Stride Rite had aggressively acquired firms, recently scooping up high-end children's shoemaker Robeez and Peabody sneaker company Saucony.

Payless said it would not introduce Stride Rite's lines into its nearly 4,600 stores, but rather sell the brands in other stores to expand the business. The combined company, with about $3.7 billion in revenue, will be renamed Collective Brands Inc. and headquartered in Topeka, Kan.

"This is the right move for us at this time," Stride Rite chief executive David Chamberlain yesterday in a phone interview with Payless chief executive Matt Rubel . "The entire retail wholesale industry is going through some very dramatic and changing times. We're seeing enormous consolidation, and to meet specific earnings targets and grow our brands, we need to be part of something larger, with greater resources and the ability to make bigger investments."

Stride Rite's headquarters will remain in Lexington, but company executives said potential job cuts of back-end operations are still being studied. The transaction is expected to close this summer.

Collective Brands -- which will operate as holding company for Payless ShoeSource, Stride Rite, and Collective Licensing International, a brand management and global licensing unit -- will be listed on the New York Stock Exchange. The Payless name will remain on its retail stores. Stride Rite, which operates more than 300 of its own shops, will also keep its name.

"We will be well-positioned to compete in the most promising growth sectors of the footwear market," Rubel said.

Stride Rite's sale comes just two years after the firm snatched up Saucony for $170 million as a way to add an athletic footwear line to a product roster that includes its namesake children's shoes and Tommy Hilfiger footwear . That same year, German sporting goods company Adidas group bought Reebok International of Canton for $3.8 billion. More recently, PPR SA, owner of Gucci Group luxury brands, made a bid to acquire sporting goods maker Puma AG, whose North American headquarters are located in Westford.

At Boston sneaker company New Balance, Fran Allen , executive vice president of sales for the United States and Canada, said yesterday, "This acquisition continues the trend of consolidation we have seen in the industry. As a private independent company, we will stay the course to reinforce our ability to strategically plan for the long term and continue our focus on our retailers."

Madison Riley , a principal with retail consultancy Kurt Salmon Associates, said Stride Rite unites Payless -- a company with tremendous real estate -- with a strong branded footwear company that could benefit from more dedicated retail distribution.

"It brings together the best of both worlds," Riley said.

Stride Rite's Chamberlain, who disclosed in March that he planned to retire this year, said he would stay on as chief executive until the transaction closes. Rubel will then serve as the interim chief executive of Stride Rite until a new leader is tapped.

In an interview yesterday, Rubel said he approached Stride Rite 10 months ago about a possible deal but was turned down by company executives. Two months ago, Rubel said, he again approached Stride Rite and "got as aggressive as we could in terms of price" and negotiated a deal.

The all-cash offer of $20.50 per share represents a 33 percent premium over Stride Rite's closing price yesterday.

Jenn Abelson can be reached at abelson@globe.com.