Frederick's of Hollywood's parent company has agreed to merge with Movie Star Inc in a combination of two intimate apparel specialists. The new firm will be called Frederick's of Hollywood Group Inc.

Under terms of the definitive merger agreement, already approved by the firms' boards of directors, shareholders of privately held FOH Holdings Inc will receive 23.7m shares of new stock in Movie Star, the publicly held New York-based intimate apparel supplier.

As part of the transaction, Movie Star has agreed to grant its shareholders non-transferable rights to purchase US$20m of the new MS shares. The successful closure of the rights offer is a condition of the merger agreement.

TTG Apparel LLC, MSI's biggest shareholder with a 22.4% stake in the firm, and funds affiliated with Fursa Alternative Strategies have agreed to compensate for any shortfall. TTG and Fursa collectively own all of Frederick's outstanding shares and will be issued 60% of the shares of the combined company.

Among the plans of the new entity are the opening of approximately 50 Frederick's stores in the next 36 months and the expansion of the retailer's online and catalogue businesses. 

The two entities will continue to operate as before, with Frederick's offices in Hollywood, California, and a distribution centre in Phoenix, Arizona. MSI will maintain its offices in New York and its distribution centre in Poplarville, Mississippi.

Linda LoRe will continue as chief executive of Frederick's and Mel Klingin in the same capacity at Movie Star. They will report to a new board of directors derived from the existing firms. A new executive chairman will be named later.

LoRe commented: "Movie Star's exciting intimate apparel product designs and reliable contract manufacturing capabilities will be a great benefit to Frederick's, as we aim to add new Frederick's of Hollywood locations over the next three years and strengthen our competitive position in the intimate apparel market, in retail stores as well as in our online and catalogue businesses.

"At the same time, Frederick's remains committed to its successful model of partnering with a variety of highly qualified vendors who supply us with innovative products and are a critical component of our business mix," she concluded.

Knigin said: "We look forward to continuing to serve and strengthen our relationships with leading mass merchants, department stores, national and regional chains and other retailers of branded and private label intimate apparel, as well as our new partner, Frederick's.

"We are extremely excited about working together to create a stronger company with Frederick's of Hollywood, one of the most important names in the intimate apparel business."

Frederick's revenues during the fiscal year ended 29 July were US$139m. Movie Star's sales for the fiscal year ended 30 June were about $51m.
 
By Arnold J Karr.