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North Bay Business Journal

Wednesday, October 24, 2012, 7:17 pm

Restoration Hardware lowers IPO target to $142M, details dealings with former CEO

Amended filing warns of ‘adverse impact’ of CEO transition

By Jeff Quackenbush and Eric Gneckow, Business Journal Staff Reporters

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    Restoration Hardware -- RHCORTE MADERA — RH, the new name for luxury home furnishings retailer Restoration Hardware, lowered the maximum amount it wants to raise in a return to public ownership sometime this year to $142.5 million, according to a new regulatory filing.

    The Corte Madera-based company wants to offer 5.94 million shares at $24 a share, according to an amended stock registration filed Tuesday with the U.S. Securities & Exchange Commission. A Sept. 19 amendment put the IPO goal at $150 million for the proposed listing on the New York Stock Exchange under the symbol “RH.”

    The latest amended filing added financial details to the sensitive relationship between the company and Gary Freidman after he resigned as chairman and co-chief executive officer in August to advisory roles as chairman emeritus, “creator and curator.”

    Home Holdings, LLC, a coalition of private-equity investors that purchased RH in 2008 then in September 2011 filed to take it public again, plans to invest $5 million in Hierarchy, LLC, half initially and the remainder in one or two tranches, according to the amended filing Tuesday. As part of a forthcoming deal, Heirarchy would get RH’s limited line of apparel to manage and develop for at least two years, staying out of RH’s main product lines, though baggage might be an expansion area for Hierarchy in the future, according to the document.

    Hierarchy was set up with Mr. Friedman having a controlling interest and RH a minority stake to “develop new lines of business, including apparel, accessories, footwear and jewelry, many of which will be complementary to the company’s new product development strategy,” according to the August announcement.

    Mr. Friedman’s departure from oversight roles at RH followed a board-commissioned investigation of a personal relationship he had with an employee, something both described as consensual, according to the September amended filing. The company said it had “substantial expenses” related to the investigation and said it could incur more because of Mr. Friedman’s continued dealings with the company. 

    The potential for an “adverse impact” on the company from the leadership transition to Carlos Alberini as full CEO — he had shared the role with Mr. Friedman since 2010 — was added as a risk factor in the September amended filing.

    IPO proceeds would help pay debts from its line of credit with Bank of America N.A., according to the filing.

    The amended filing also shows that Carlos Alberini will serve as the sole chief executive officer of the company. Previously, he shared the role with founder Gary Friedman. Mr. Friedman remains with the company in an advisory role.

    Home Holdings includes private equity funds Catterton, Tower Three and Glenhill. The coalition will remain the largest holder of common stock after the offering. The company said it does not intend to offer dividends for shareholders.

    Bank of America, N.A. and Golden, Sachs & Co., are underwriting the sale.

    For the fiscal year ended Jan. 30, RH distributed about 26.1 million catalogs. Net revenue was $958.1 million in that period, up from $625.7 million in 2009.

    Under the direction of its new owners, the company reduced the number of stores from 95 in January 2011 to 74 stores and 10 outlets in the U.S. and Canada as of April of this year.


    Correction: Gary Friedman joined Restoration Hardware as chief executive officer in 2001. Stephen Gordon started the first store in Eureka in 1980. The original story incorrectly identified Mr. Friedman as company founder.

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