Fashion Dispute Settled: Polo to Pay Jones Apparel $355 Million in Jeans Deal

Polo Ralph Lauren and Jones Apparel Group reach a settlement, with Polo buying back the Polo Jeans license from Jones.

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NEW YORK — One of fashion’s biggest duels has been resolved.

On Sunday, Polo Ralph Lauren Corp. and Jones Apparel Group Inc. reached a settlement over the lawsuits each had filed against the other in 2003. As part of the agreement, Polo is buying back the Polo Jeans business of women’s and men’s casual apparel and sportswear in the U.S., which was licensed to Jones.

Polo is acquiring the Jones subsidiary Sun Apparel Inc., which primarily manufactured and distributed Polo Jeans, the company told WWD exclusively. It will pay Jones about $355 million for Sun and to resolve the outstanding litigation and claims. The amount is subject to any closing adjustments, but the deal is expected to be completed in the next few weeks.

The two companies are expected to announce the settlement today.

“Over the past few years we have been taking more direct control of our brands,” Ralph Lauren, chairman and chief executive officer of Polo Ralph Lauren, said in a statement. “Buying back Polo Jeans is a continuation of that long-term strategy and gives us the ability to develop our denim business to its fullest potential. We have the world-class design, marketing and advertising expertise to take this business to the next level as we continue to grow on a global basis.”

Peter Boneparth, president and chief executive officer of Jones Apparel, said in a Jones statement: “We are very pleased to resolve these outstanding matters. This agreement will allow Jones Apparel to focus all of its energy and resources on pursuing its strategic plan to enhance shareholder value. The Polo Jeans license imposed certain operating restrictions on Jones Apparel, including the sale of certain competing product. Additionally, we recognize it also created uncertainty due to Polo Ralph Lauren Corp.’s contractual right to acquire the license in 2010 at 80 percent of fair market value.”

UBS Investment Bank served as Polo’s financial advisor in the transaction, while Bear, Stearns & Co., Inc. advised Jones. Polo’s legal counsel was Paul, Weiss, Rifkind, Wharton & Garrison LLP, while Jones’ was Cravath, Swaine & Moore LLP.

Sun also has a small private label business, which Polo is not buying.

This story first appeared in the January 23, 2006 issue of WWD.  Subscribe Today.

Polo today is one of the fastest growing designer businesses in the world, with such brand names as Ralph Lauren, Polo by Ralph Lauren, Ralph Lauren Purple Label, Lauren by Ralph Lauren, RLX and Rugby. In the year ended April 2, Polo’s revenue grew 24.7 percent to $3.31 billion, including a wholesale sales gain of 41.4 percent to $1.71 billion and a 15.2 percent gain in retail sales in company-owned stores to $1.35 billion.

Bringing Polo Jeans in-house is in line with Polo’s recent strategic moves, which last year included the return of the footwear and children’s wear licenses in-house. The Jones settlement grants Polo full control over the denim business, which continues to be one of the hottest categories in fashion. In last year’s WWD 100 survey of top-recognized brands, Polo Jeans ranked 39th with estimated wholesale sales of $400 million.

“We already have a strong denim business in Asia and Europe, and with direct ownership of the Polo Jeans business in the United States we will continue to invest in design and infrastructure to leverage our global jeans and denim capabilities,” Roger Farah, Polo Ralph Lauren’s president and chief operating officer, noted in the company statement. “We continue to increase our direct ownership on a worldwide basis and this transaction is consistent with that strategic direction.”

Freestanding retail has become increasingly important at Polo. Its Rugby concept, launched with a store in Boston in 2004, for instance, was created as a freestanding retail concept. Polo could use its retail expertise to translate Polo Jeans into a freestanding store concept as well.

The dispute over Polo Jeans helped Boneparth make his mark at Jones. In fact, many thought the outcome would be a crucial indicator of his tenure at the apparel giant, where he began as ceo in May 2002, succeeding Jones founder Sidney Kimmel.

Jones obtained the Lauren by Ralph Lauren license in 1995, and, by acquiring Sun Apparel in 1998, added the Polo Jeans license to its fold. Ralph, Jones’ third Polo license, was inked in 1999. Lauren struck the three licensing deals with Kimmel and Jackwyn Nemerov, then Jones’ president and chief operating officer. While Lauren and Kimmel were said to have a strong rapport, sources said at the time things didn’t run as smoothly with Lauren and Boneparth, setting the stage for the dramatic dispute.

At stake was the termination date of Jones’ Lauren by Ralph Lauren license, which at the time had reported sales of $548 million. Jones Apparel’s repeated assertions to the press and to Wall Street that the Lauren by Ralph Lauren line was a “mature business” caused a disagreement with Polo executives, and served to strengthen Polo’s determination to bring the Lauren license back in-house after 2003, though Jones contended it had the right to keep the license through the end of 2006.

The dispute set off a tangled web of legal matters concerning the Ralph by Ralph Lauren line, then also licensed to Jones. The collection was contracted to make a minimum of $100 million in 2002, but had sales of just $37 million that year. Polo claimed the Ralph by Ralph Lauren license was linked to the Lauren by Ralph Lauren license, and a default on one was grounds to end the other, which Jones disputed.

During active negotiations with Farah and his team and attorneys to reach an agreement in June 2003, Boneparth left the room, came back and told the Polo people that Jones was going to walk away from the Lauren license, and file a breach of contract suit against Polo, as well as former Jones president Nemerov to enforce her non-compete clause. The suit alleged that Nemerov conspired with Polo against Jones. [A judge later dismissed Jones’ claims against Nemerov and that case went to arbitration. Polo hired Nemerov as executive vice president in September 2004, after her non-compete clause with Jones ended in June 2004.] In the lawsuit, Jones sought $550 million for lost profits in sales, and punitive damages to be determined. Polo then filed its own lawsuit, separate from Jones’, seeking declaration from the court that the Lauren license rightfully ended on Dec. 31, 2003, and reverted to Polo the next day, due to the terms of a separate “cross-default agreement.” The Ralph line has since been discontinued.

Polo took the Lauren line in-house and relaunched it.

Boneparth, meanwhile, went on to secure other businesses to make up for the loss of revenue from the Lauren line. Jones, which also owns Nine West and Anne Klein, among other brands, immediately proceeded to launch the Jones New York Signature collection, and in 2004, snapped up Barneys New York in a transaction valued at $397.3 million. Barneys is considered to be one of the major growth catalysts for Jones. Boneparth has expressed his ambition to double Barneys’ business and make it a $1 billion chain. With Jones’ deep pockets, Barneys has set on an ambitious expansion course, opening Co-op stores in such markets as Atlanta and Costa Mesa, Calif. Barneys New York flagships are scheduled to open in Boston this spring and in Dallas in the fall, and the company has reportedly set its sights on such markets as San Francisco, Miami, Washington and Las Vegas for additional locations.

Of the settlement with Polo, Boneparth said: “This transaction affords us the strategic and financial flexibility to continue executing our multibrand, multichannel business model. Jones Apparel will pursue opportunities to expand the product offerings of our various brands, as well as, evaluate strategies to redeploy the cash proceeds of this transaction including acquisitions and share repurchases, or a combination of the two.”

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