Tags: US | Phillips | Van | Heusen | Tommy | Hilfiger

Calvin Klein Parent to Buy Tommy Hilfiger for $3 Billion

Monday, 15 March 2010 08:15 AM

Two iconic American clothing labels — preppy Tommy Hilfiger and Calvin Klein, known for its modern aesthetic — are coming together under one roof after Phillips-Van Heusen said it will purchase Tommy Hilfiger for about $3 billion in cash and stock.

The deal adds a prominent brand to Phillips-Van Heusen's stable, which also includes Izod and Arrow. It's expected to help Phillips-Van Heusen introduce some of its brands overseas, where 65 percent of Hilfiger's business is generated.

Apparel analysts expect the Hilfiger brand to expand further beyond its stronghold in Europe into Asia and South America, while bolstering its U.S. business.

"I think it is a bold strategic move to establish Phillips-Van Heusen on the global playing field," said Peter Brown, vice chairman of Kurt Salmon Associates. "For Tommy Hilfiger, it is a great payday for management that has done a phenomenal job with the brand."

Andrew Jassin, co-founder of apparel consultant Jassin-O'Rourke Group LLC, said that it's the biggest deal ever in terms of gross dollars spent on a clothing brand.

Shares of Phillips-Van Heusen, which owns and markets the Calvin Klein brand, rose 10 percent during midday trading and briefly reached a 52-week high.

Phillips-Van Heusen, based in New York, said the combined company's revenue will total about $4.6 billion.

With the acquisition, Phillips-Van Heusen becomes the world's fourth-largest apparel company, from its no. 10 ranking, based on estimated revenue this year.

About 60 percent of the combined company's revenue will come from the U.S. and 40 percent will come from overseas, Phillips-Van Heusen CEO Emanuel Chirico said. About 45 percent of revenue will be wholesale, 45 percent retail and 10 percent licensing.

Tommy Hilfiger will remain in his role as principal designer, setting the vision for the Tommy Hilfiger brand.

"We fully expect to maintain Tommy's team and culture as we did in our acquisition of Calvin Klein," Chiciro said. "Meaning all of Tommy's existing design, marketing, sales, and other customer- and consumer-facing operations will remain in place."

The Tommy Hilfiger brand, which became famous for its preppy clothes and built big shops next to other powerhouse designer names such as Calvin Klein and Ralph Lauren in U.S. department stores, has had rocky times. By the late 1990s, the brand lost its appeal and underwent a series of fashion makeovers to turn around sales. Department stores reduced the size of its displays.

However, under the control of buyout firm Apax Partners, which purchased the brand in May 2006, Tommy Hilfiger's business underwent a revival in U.S. sales as it turned back to its preppy roots and sought to boost profitability.

In 2007, Tommy Hilfiger struck an exclusive partnership with department store operator Macy's Inc. to sell its clothing, a move that has helped shore up business. The company's fragrance, home furnishings, accessories and other products are still being sold at other stores as well as Macy's. The clothing also is sold at the brand's own stores and Web site.

Sherif Mitya, a partner at A.T. Kearney, said that the acquisition will provide the Tommy Hilfiger brand "a stable home." Jassin pointed out how Phillips-Van Heusen bolstered the Calvin Klein business since its acquisition in 2003 by expanding the label to more product categories such as dresses and suits.

Fred Gehring will continue as CEO of Tommy Hilfiger, and also become CEO of Phillips-Van Heusen's international operations. He will also join the Phillips-Van Heusen board of directors.

The sale does not require a shareholder vote and is expected to close in Phillips-Van Heusen's second quarter.

PVH said it expects the deal to immediately help earnings by 20 cents to 25 cents per share, excluding one-time items, beginning in the current fiscal year. It said the deal will help earnings by 75 cents to $1 the year after that.

Phillips-Van Heusen expects to save $40 million annually as a result of the deal.

The deal includes approximately 1.9 billion euros in cash ($2.6 billion) and 276 million euros ($379.9 million) in Phillips-Van Heusen stock. Phillips-Van Heusen will also assume 100 million euros ($137.6 million) in liabilities.

A group led by Apax acquired Tommy Hilfiger in May 2006 for about 1.2 billion euros. It said it has invested more than 400 million euros in the business, added 1,000 employees and nearly doubled the number of stores to 1,002. Apax will retain a 13 percent stake in the company.

Apax Partners also provided financing when Phillips-Van Heusen bought Calvin Klein in 2003.

Shares of Phillips-Van Heusen rose $4.98, or 10.4 percent, to $52.70 during midday trading, after earlier reaching a 52-week high of $54.64.

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Two iconic American clothing labels preppy Tommy Hilfiger and Calvin Klein, known for its modern aesthetic are coming together under one roof after Phillips-Van Heusen said it will purchase Tommy Hilfiger for about $3 billion in cash and stock. The deal adds a...
Monday, 15 March 2010 08:15 AM
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