Citi Has Hold On Liz Claiborne

Citi Investment Research is out with a research report on Liz Claiborne Inc LIZ and it has a Hold rating and a $7 price target on shares. In a note to clients, Citi Investment Research writes, "LIZ announced it will sell its Mexx business to a JV for common equity (LIZ owning 18.75% and the Gores Group owning 81.25%) and total cash consideration of $85mm, which includes $60mm of ABL facility debt that is expected to be assumed by the JV and refinanced at closing. With $731mm in sales at 2010-end, this puts the sale price at 0.1x sales. This is below a previously speculated (in news reports) price of ~$200M ($100M +$100M to cover debt), or ~0.3x 2010 sales. While it is a positive that LIZ is divesting of a negative EBITDA business (eliminates ~- $25mm in negative EBITDA for 2011), significant debt will remain outstanding after the transaction and LIZ will still be responsible for 18.75% of the business, which would extract from earnings if losses continue." Shares of LIZ are up 35 cents to $5.41.