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Crocs Enters Into Deal With Blackstone To Buy Back And Convert Preferred Stock

Crocs, Inc. (CROX) said Monday that it has entered into an agreement with Blackstone Capital Partners VI L.P. as well as certain of its affiliates and transferees relating to the repurchase and conversion of the company's Series A Convertible Preferred Stock owned by Blackstone.

The preferred shares, which were acquired by Blackstone in January 2014 as part of a $200 million investment in the company, carried a cumulative dividend payable in cash at a rate of 6.0 percent per annum and received an allocation of net income in any fiscal quarter in which there were positive earnings.

The preferred shares were also convertible at Blackstone's option into approximately 13.8 million shares of the company's common stock at a conversion price of $14.50 per share.

Pursuant to the agreement, Crocs will repurchase half of the outstanding preferred shares, representing approximately 6.9 million common shares on an as-converted basis, for $183.7 million, or $26.64 per share.

Blackstone will immediately convert its remaining preferred shares into approximately 6.9 million shares of Crocs' common stock and has agreed not to sell or transfer those shares to a third party for approximately nine months. The two parties have entered into a lock-up agreement.

As part of the deal, Crocs will pay Blackstone a one-time additional payment of $15.0 million. Further, Blackstone's right to nominate future directors will be reduced from two to one.

Anne Mehlman, Executive Vice President and Chief Financial Officer, said, "Elimination of the Preferred Share dividend and the Preferred Share income allocation increases our 2018 year to date pro forma EPS by approximately $0.18 or 30%. By repurchasing 50% of the Preferred Shares, we have eliminated the significant overhang on our common stock, and we did so in a single transaction absent the price uncertainty and volume limitations associated with open market purchases."

In connection with the transaction, Crocs incurred total non-recurring charges of $101.0 million to net income available to common stockholders. Crocs will also incur $15.5 million of non-recurring cash charges, made up of the $15.0 million one-time additional payment and $0.5 million of other costs associated with this transaction.

Crocs noted that the accounting treatment applicable to this transaction will result in a "net loss available to common stockholders" for the fourth quarter and full year 2018.

Looking ahead to the fourth quarter, Crocs reiterated its outlook for revenues of $195 million to $205 million. For fiscal 2018, the company affirmed its forecast for revenues to be 4 percent to 5 percent higher than 2017 revenues of $1,023.5 million.

For fiscal 2019, the company continues to expect a mid-single digit increase over 2018 revenues.

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