The Deal That Never Was
Why Ride and Sims didn't merge.
By Sean O'Brien
9/3/98

It was past midnight on the morning of Monday, May 18, 1998 when the Sims/Ride merger officially fell through.

The press releases were ready, the contracts had been drawn up, and the board of directors for both companies were sitting bleary-eyed around a table at Ride's Preston, Washington headquarters. The previous night, at a party in Tim Pogue's snowboard shop Faction, a few rank-and-file Ride employees were spouting off to their Sims counterparts to pack their bags; that on Monday morning only severance checks—not jobs—would be waiting.

Former Sims CEO Jim Weber (left) with company founder Tom Sims.

But sometime early Monday morning, and with just a few sentences, the deal was torpedoed. There are somewhat conflicting stories from both camps on the causes, but at least one theme is prevalent: This was a deal that was put together on the fly, and a deal that never had the support of either board of directors.

So, perhaps it's not surprising that within a matter of minutes the deal had flown apart, and within a matter of months, the CEOs at both companies had stepped aside.

"When you have a group of people around the negotiation table, late at night, and with a deadline looming, egos are bound to play a role," said an off-the-record source close to the deal.

But was it merely a case of large egos, did the deal even make sense?

Now that the dust has settled, and it appears both companies are finding success on their own, here are the facts and rumors about the deal. Sources at both companies declined to go on record.

Perhaps no tale better illustrates the explosively dynamic nature of the current snowboarding market, or the backroom financial machinations that guide our industry. For make no mistake, this is a story that's being repeated in many board rooms around the winter-sports industry right now.

The Nuts And Bolts
According to a Ride proposal, Sims shareholders would have received 8,733,000 shares of Ride stock, which based on the stock price at the time, would have made it a 22.1-million-dollar deal. One-million shares could have been exercised upon completion of the merger.

Sims founder Tom Sims would have become vice chairman of the combined companies, Ride CEO Bob Hall would have remained president and CEO, and Sims CEO Jim Weber would resign.

If the Ride proposal was agreed upon by both boards of directors, Ride would have 59-percent control of the combined entity and the Sims board of directors would have controlled the remaining 41 percent.

Former Ride CEO Bob Hall (right) with product manager Jason Kasnitz.

Ride would have been the big-mountain brand, and Sims would have been the freestyle-oriented brand, says a Ride source close to the aborted deal.

A Firestorm Of Rumors
It was the week of May 11 when rumors first surfaced that Vans was looking to buy Sims. Many in the snowboarding industry nodded their heads at that news—especially with the rumors that Vans was buying Switch. It all seemed a good fit.

A few days later, the idea of a Sims/Ride partnership first appeared, but most people were left scratching their heads.

The brands seemed too close; had the industry really become that cannibalistic?

There probably isn't a company in the snowboarding business today that hasn't considered either selling out or acquiring another brand—or both. So why did the Ride/Sims merger set off such a firestorm of rumor?

The deal would have created the second-largest snowboard brand in the world (Burton is first). Both brands are also top-tier players with established brand equity and some would say "unique" lineage and history.

Beat The Clock
But what really made this deal the talk of the town was its beat-the-clock nature. Generally, when deals such as this occur, the CEOs of both companies hash out the details in slow and private negotiations for months before involving the shareholders. This requires painstaking diligence, where the numbers from both companies are reviewed and agreed upon in excruciating detail.

When both boards of directors finally do get together, it's typically a formality—or there are just a few points to discuss. By that time, both CEOs would have presented the deal to their boards and would be entering any meeting with their approval. If not, there would never be a meeting in the first place.

Generally, this is how it works—but not in this case.

While Hall and Weber had been talking since March, both boards of directors ultimately received somewhat frantic phone calls saying that the deal was coming together and they needed to come out to Seattle immediately.

You see, the deal had to be finalized before the May 11 Ride shareholder meeting. Because of Security and Exchange Commission laws, Ride management had to tell stockholders whether the previously announced issuance of twenty-million shares of new stock was to be used for acquisitions. The existing proxy statement the shareholders would vote on at the meeting read that Ride had no intention of using the stocks for acquisitions.

If the deal was to go through, a new proxy statement had to be ready for shareholder vote by 9:00 a.m. If not, the SEC mandates a 30-day cooling off period before any negotiations with any company could go forward.

So, from the beginning the deal may have seemed like a shotgun wedding.

But Did It Make Sense?
From Ride's perspective, the deal looked pretty good—at least on the surface. According to industry estimates, around 80,000 Sims snowboards were built last year. If the deal had gone through, Ride was planning to move a majority of Sims' board production from the Elan factory in Fürnitz, Austria to Ride's Corona, California plant—enabling that factory to nearly at full capacity.

With the Corona factory full, in theory the profitability of Ride's boards would have increased as overhead was spread among a larger number of boards, resulting in a overall price-per-board cost decline.

As importantly, production of Ride's Liquid brand of pricepoint boards would have moved offshore, say sources close to the deal, where production costs are lower and where Ride wouldn't be zapped by fluctuating exchange rates.

The deal also made sense in that it really wouldn't add to Ride's overhead. Both staffs would have been whittled by the merger, but without a factory to contend with, the Sims operation was already remarkably streamlined.

And yet, despite these synergies, sources say this was primarily Bob Hall's deal, and that the Ride board of directors was much more skeptical about making it happen—for a variety of internal and external reasons.

There were good reasons for Hall to pursue the deal. After all, there aren't many brands like Sims in the industry. Not only does it have tremendous lineage and sizable production, but a source close to the deal claims that the brand would have been profitable last year were it not for the ongoing legal bills associated with the Sims/Marker lawsuit—and the '97/98 season sucked for just about everyone.

Did The Deal Make Sense For Sims?
While Sims has solid brand equity, there had been persistent rumors since March that the brand, like many others in the snowboarding industry, was poorly capitalized to move forward and that several board members were scrambling to find additional financing.

John Textor, former member of the Sims pro skate team and a key Sims board member, is the president of Wyndcrest Partners in West Palm Beach, Florida. He had enticed a group of Boston, Massachusetts-based investors called the Keene Group to invest in Sims back in 1996, and Textor and Tom Sims combined control a majority interest in Sims.

But with the industry in consolidation and Sims' European sales down in the wake of the Sims/Marker lawsuit, some minority Sims investors were looking to gain liquidity in a way that wouldn't look like a huge hit to their profit-and-loss statement. In effect, they wanted to cash out of the snowboarding business.

And make no mistake, liquidity—not brand equity—had top-of-mind presence with at least a few of these investors, says a source close to the deal. Because what the merger would have done for the equity of the Sims brand and its founder is anything but clear.

According to a Ride source, Bob Hall and Tom Sims had hashed out the details of the merger over beer and clams. So Tom Sims could see Hall "didn't have horns growing out of his head," jokes the source, who goes on to say that Tom Sims was "enthusiastic" about the merger.

However, sources at Sims say Tom was never too excited about the proposed merger.

Indeed, to an outsider the deal seems an awkward fit for this snowboard pioneer. And in the harsh equation of business, it's likely his namesake brand would've been on the receiving end of pricepoint and distribution pressures.

Even the manufacturing synergies weren't ideal. Since Ride's Corona factory uses wet-lam lay-up, some of the most important Sims technologies would've been altered or scraped altogether. Of course, keeping some Sims production at Elan may have solved this problem.

When it comes to overall sales of the combined brands, one analyst says this is a case where one plus one would only equal one and a half—or even less.

So, here was the balance: On one hand, the Sims brand was risking loss of equity, possible bad market vibes, and the chance of reduced sales. On the other hand, there were some manufacturing synergies and efficiencies, lowered overhead, theoretically better margins, and the chance for greater liquidity.

In the end, the decision was clear for both boards of directors. While each company had a fiduciary and moral obligation to investigate the deal, in reality it never had a chance.

Moving Forward
Perhaps with hindsight, it's for the best that the Ride/Sims merger fell through. The brands are too close and a loss in marketshare of the combined entities seemed inevitable. Perhaps the Vans/Sims merger would have made the most sense (sources say Tom Sims was "heartbroken" and "enraged" when the Vans deal didn't come together).

However, for now both Ride and Sims appear to be doing fine without any merger. Both companies have shipped early. Sources say Sims was able to secure significant additional financing from Textor and one of his Hollywood connections. The new management teams are in place, and morale at both companies appears high. All in all, it's shaping up to be a good year for both brands.

Will Ride or Sims either be acquired or acquire another company?

Most likely. It's the nature of the business that you either have to get big or get out.

Switch merging with Vans, Westbeach merging with Morrow, Lamar merging with Gen-X, Limited merging with Volant, and Mervin Manufacturing merging with Quiksilver are just a few examples of how commonplace deals like these have become.

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