By  on June 24, 1994

NEW YORK -- It looks as though the CK Calvin Klein jeanswear business might return to its first suitor -- Rio Sportswear.

According to sources, Rio Sportswear and Calvin Klein Inc. have signed a new letter of intent for Rio to purchase the jeanswear business for a sum "higher than the Fruit of the Loom deal."

The original Rio-Klein deal fell through in March, and negotiations then began with Fruit of the Loom.

This week, as reported, Klein and Fruit of the Loom terminated their talks after they failed to come to terms on the contents of the product line. FTL wanted to do a broad line that would include knit and woven casual pieces along with jeans. Klein wanted to focus on just denims.

In that deal, Rio would have purchased the CK Calvin Klein women's and men's jeans business for between $40 million and $50 million, as well as the purchased receivables, inventories and plants. It would have made long-term royalty payments to Calvin Klein, renewable every 10 years.

Rio and Klein first signed a letter of intent in February, but the deal didn't materialize -- reportedly because of Rio's inability to finance it, more than earlier reports of a personality conflict between Arnold Simon, chief executive officer of Rio, and Calvin Klein.

Sources said Rio, a $200 million firm, has now raised its offer to Klein and has come up with additional funding.

Rio had earlier agreed to buy the business for about $35 million plus royalty payments. The purchase would have covered the assets of the jeans business, including a laundering facility in Nesquehoning, Pa., and a sewing plant in Abbeville, S.C.

Simon couldn't be reached for comment Thursday, nor could Klein, vice chairman of Calvin Klein Inc., or Barry Schwartz, chairman of the company.

The CK Jeans business is reportedly a $100 million operation and accounts for the bulk of the volume done by the designer's CK label, which also includes bridge sportswear.

The original deal was slated to become effective with the fall 1994 collection, but when that fell through, as did the Fruit of the Loom talks, Klein had to put the jeanswear collection into production himself.Originally, Klein said he was attracted by the options Rio would offer for better pricing and product development. Rio has significant overseas sourcing in the Far East and Central and South America. During the first round of negotiations with Rio, Klein lowered the retail price of his CK Jeans to about $45, taking the product down from $60 and higher.

Rio Sportswear, based here, currently manufactures and markets girls' and junior jeans under the Rio brand, and jeans under license from Bill Blass and L.A. Gear.

One of the roadblocks in the initial Rio-Klein talks was the stance taken by Oshkosh B'Gosh, one of the largest children's wear manufacturers in the U.S., then negotiating to acquire Rio.

In mid-March, after six months of negotiations, the Oshkosh-Rio deal evaporated. One of the reasons was the potential association between Rio and Calvin Klein. Oshkosh's chief financial officer, David Omachinski, said his company and Rio "couldn't reach an agreement on the strategic direction of the Rio business," and that "Calvin Klein was a discussion item."

At the same time, Rio's Simon cited "Oshkosh's unwillingness to deal with Calvin Klein."

In recent months, Klein has expressed a desire to turn his entire operation -- excluding the Collection -- into a licensing business within the next few years.

In March, Klein sold his men's underwear business to The Warnaco Group, which also licensed the trademarks for men's accessories worldwide. Warnaco will acquire the worldwide right to Klein's name for women's innerwear when the U.S. license for that business expires at the end of the year.

The deal for the men's underwear and accessories was worth $62.5 million. There will be additional royalty payments on the men's underwear once the business, currently doing about $70 million, hits a cumulative sales figure of $200 million.

Klein's fragrance license with Unilever Ltd., his most successful licensing arrangement, brings in a wholesale volume in excess of $400 million.

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