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Source: Reuters
Phillips-Van Heusen, owner of the Calvin Klein label, has agreed to buy fashion brand Tommy Hilfiger from London-based Apax Partners in a $US3 billion ($NZ4.27 billion) cash-and-stock deal to boost its presence in Europe and Asia.
The deal will make Phillips-Van Heusen one of the largest suppliers of menswear to US department stores, and will keep Hilfiger founder Tommy Hilfiger in his role as principal designer for the clothing line.
It will also add yet another high-profile name to PVH's lineup, home to Izod and Calvin Klein.
PVH also distributes menswear under labels such as Kenneth Cole New York, Michael Kors, Donald Trump and DKNY.
News of the deal boosted Phillips-Van Heusen's shares about 10% and marked an end to London-based private equity firm Apax's plans for an initial public offering for the iconic brand which it had bought in 2006 for $US1.6 billion.
Private equity firms have been increasingly able to exit investments as the economy and markets have stabilized.
Taking companies public has been more problematic.
Apax made 4.5 times its investment on the deal and will hold about 7% of the stock in PVH after the deal, a source familiar with the situation says.
"The deal certainly makes sense and that can be seen from PVH's share price. A lot of people out there see that although it is quite a costly acquisition, they are still getting it at quite a low price," IBISWorld analyst Toon van Beeck says.
At an estimated valuation of 8 times trailing earnings before interest, taxes, depreciation and amortization, "the price seems reasonable and the deal makes strategic sense to us," Morningstar says in a research note for investors.
Tommy Hilfiger has spent the last few years trying to undo the damage from shifting its focus to a more mainstream group of buyers.
It suffered years of sales declines after its logo-heavy designs helped make it a staple of urban streetwear, but alienated more affluent customers.
Now, the company is expanding more quickly abroad than in the United States.
"It's an opportunity to really revamp Tommy Hilfiger, which was such an iconic brand in the 90s and has somewhat died," van Beeck says.
"I don't think Apax Partners did enough with the brand, but Van Heusen is more familiar with menswear," says Donna Reamy, associate professor at the department of fashion design and merchandising at Virginia Commonwealth University in Richmond.
Hilfiger CEO Fred Gehring says the PVH deal makes sense despite Apax's earlier plans to take Hilfiger public.
"When you have a strategic sale, the norm often is you also lose a little bit of your identity in the process. PVH on the other hand in the transaction with Calvin Klein seven years ago has demonstrated how it can be done differently," Gehring told Reuters.
Gehring will remain as chief executive, join the PVH board and take on international operations for PVH.
PVH expects the deal to boost earnings by US20 cents to US25 cents a share, excluding items, in the current fiscal year.
It also says the deal will add US75 cents a share to $US1 a share in the next fiscal year, ending January 29, 2012.
Private investment firm Blue Harbour Group, which owns about 1.5 million Phillips-Van Heusen shares, says it is "very supportive" of the deal.
There is "potential for the stock to move further up from the move we've seen today," says Michael James, a senior trader at Wedbush Morgan in Los Angeles.
Fair price
Phillips-Van Heusen will pay $US2.6 billion in cash and $US380 million in common stock for Tommy Hilfiger.
Phillips-Van Heusen expects to use $US3.05 billion in debt, $US385 million in cash, $US200 million in preferred stock and $US200 million from a common stock offering to finance the deal and refinance other debt.
The company is paying "a very fair price for such a powerful brand," PVH Chief Executive Emanuel Chirico told Reuters.
It expects $US300 million in annual cash flow, and plans to pay off $US200 million in debt in 2011.
The deal will not alter PVH's relationships with its other brands and licenses, he says.
The company sees annual cost savings of $US40 million from the deal and expects to close it in the second quarter.
Peter J Solomon Co is the lead financial adviser to PVH. Barclays Capital, Deutsche Bank, Bank of America Merrill Lynch, and RBC Capital Markets also acted as financial advisers and will arrange financing for the deal.
Credit Suisse acted as lead financial adviser to the Tommy Hilfiger Group and as sole adviser to Apax Partners.
