Fabrics And Threads

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Fabrics and Threads (F&T) manufactures a line of high-quality men’s clothing in Canada, distributing its products through its own factory outlets in major centres and a large number of upscale chains across Canada and the United States. F&T has been a family-owned business, operating successfully for 50 years, primarily due to its high-quality and conservative line of menswear. F&T’s workforce is highly trained and consistently produces a quality product. Sales have increased steadily thanks to these factors as well as F&T’s excellent distribution network, which is known for short, error-free delivery times. F&T has sourced materials to make the clothing from reputable suppliers in Europe. Despite the sales appeal of F&T’s product, its margins came under pressure during the poor general economic conditions that developed in 2008. As a manufacturer and retailer of men’s clothing, F&T found it difficult to compete with the new “unisex” trend in the clothing industry. These types of retail stores offer both men’s and women’s clothing and have proven to be far more profitable than stores offering men’s clothing alone. Gross margins in women’s clothing tend to be twice those in men’s clothing. Consequently, in the summer of 2010, the owners of F&T decided to sell all their shares to Harry and Laura (H&L), a Canadian publicly-traded clothing manufacturer and retailer. H&L paid them a price significantly higher than the fair market value of the capital assets and liabilities in order to obtain their quality F&T label. H&L manufactures, imports, and retails clothing that is considered to be of lower quality than that manufactured by F&T. The takeover went smoothly, as H&L either retained many of the key employees or offered them generous severances with opportunities to contract their services. F&T’s shares do not trade on the markets, and the name of the

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