NEW YORK — Mark Weber's management style didn't last very long at Phillips-Van Heusen.
The clothing and footwear giant surprised the industry and the markets Monday with the news that its chief executive officer would leave the company "by agreement with the board" after only eight months in the job. He will be replaced by PVH's president and chief operating officer Emanuel Chirico, 48.
Meanwhile, Bruce Klatsky — who handpicked Weber to replace him as ceo last June — has agreed to continue as chairman and seek reelection to the board this summer. Klatsky originally had planned to step down to focus on his new hedge fund. His new term as chairman will continue to June 2007.
Weber's annual pay, excluding options, was $2.4 million last year. The company's proxy states that Weber's termination payout entitles him to three times "his average cash compensation."
Weber's departure had little effect on PVH's shares — they closed at $36.09 in trading Monday on the New York Stock Exchange, down 74 cents, or 2 percent — but it led to a whirlwind of speculation about the reasons. Two issues immediately became clear: The group's largest single shareholder, Apax Partners, which owns 38 percent of PVH, clearly flexed its muscle over Weber, and the outgoing ceo's style of management was the primary reason for his ouster.
Separately, PVH said it was raising its fiscal 2005 guidance to at least $1.99 per share, excluding one-time costs associated with the company's secondary offering. Its previous estimate was $1.97 to $1.99 per share, excluding the one-time costs. For the fourth quarter 2005, the company guided earnings per share to be at least 37 cents, or 1 cent above Wall Street's consensus estimates for the quarter. For fiscal 2006, the company increased its diluted EPS guidance to between $2.11 to $2.18, which includes the impact of expensing stock options.
The rapid change in PVH management reflects a new paradigm on Seventh Avenue, where private equity shareholders have more control than ever over the destiny of a company. And it's another example of the difficulties companies face in planning management succession, coming close on the heels of William D. Perez resigning as chief executive of Nike. He'd been brought on board to succeed Nike founder and chairman Phil Knight.Representatives of Apax declined comment Monday, as did Klatsky. Weber and Chirico did not return calls seeking comment.
"Everybody is shocked," said a veteran PVH executive. "We didn't see this as something that was going to happen. The board knew Mark very well and trusted him and appointed him six months ago. It's surprising because the board empowered him to take the role. Whatever the reason is, it's being held very tightly at the top."
The PVH board's request for Weber to depart was surprising partially because his assuming the ceo's role appeared to be so well-planned. Weber worked as Klatsky's right-hand man for three decades at PVH and contributed to its expansion into an apparel powerhouse, including the deal to buy Calvin Klein. In announcing the management change, Klatsky said last June, "The succession plan has been obvious for several years. The catalyst was really that we are roughly two years ahead of our business plan. The Calvin Klein integration has been far better than we have ever anticipated. The company is in incredible shape, so it's a perfect time for me to pass on the torch."
One industry source said there was friction between Weber and the board since the beginning of the year. While the majority believed differences over management style were key, others thought that maybe there was some lingering friction left over from PVH's talks about a potential acquisition of Tommy Hilfiger. Apax in December agreed to acquire Hilfiger, and the $1.6 billion deal is expected to close by the end of the first quarter.
PVH at one point was in deep discussions with Apax — which helped it buy Calvin Klein Inc. a few years ago — about a joint bid for all of Hilfiger. PVH has said it was in negotiations with Apax for the Tommy Hilfiger license, but sources said talks have stalled in recent weeks. Another deal for the license, according to a source close to the company, is now expected to be final by the end of March.
During PVH's shareholder meeting last year, remarks by Weber could be seen as an example that his management style of cautious growth was different from Klatsky's and the possible genesis of a divergence of Weber's strategy from Apax's. The fund is a private equity investor that has over $20 billion under management. Some industry sources describe it as an aggressive investment company.Weber said during the annual meeting that PVH does "not need to make acquisitions to meet our numbers or exceed them. We will make acquisitions where it makes sense. We will only buy brands that people know. We will only buy companies that we feel we can grow dramatically. We have a very bright future, provided to us by a great board, a great retiring ceo, great partners and management team. I am thrilled to be a part of it and very confident in our future."
At the shareholders' meeting, Apax shored up its strength on the PVH board through the nomination of Henry Nasella, a former venture partner at the fund. Chirico also was named to the board. Christian J. Näther, a partner at Apax Partners, is on the board, too.
Other sources said Weber was increasingly micromanaging at PVH and involving himself in areas outside his main expertise. This was in contrast to the more low-key style of Klatsky when he was ceo and allowed senior executives to run the group's various divisions with little interference, provided they hit their targets.
"When I left the office on Friday, Mark was a very functional ceo. Everybody is very surprised," the PVH executive said, adding that Wall Street has approved of the company's deals over the past few years. The PVH executive noted that before the CK acquisition, "the stock was trading at around $10. Now it's about $36. If anything, Mark was instrumental in the integration. Mark had a tremendous role in being able to consolidate both companies. Mark knew the industry. He's a very charismatic man and very well known for his knowledge of product and marketing."
Robert Drbul, analyst at Lehman Brothers, said, "We were definitely surprised by the sudden announcement. Manny [Chirico] is an excellent and capable executive and we expect this to be a seamless transaction. We think the company will maintain its momentum. I think this company has a lot of management depth and that is why our positive views on PVH remain unchanged."
It wasn't immediately clear what Weber's next move will be, but Drbul noted that in addition to his severance package, he also has a noncompete clause in his employment contract. A typical noncompete clause lasts between 18 and 24 months.Drbul said he doesn't know exactly why Weber left the company, but he also believes it centered on differences in management style, such as how he wanted to run PVH and how the board felt PVH should be run.
Drbul, who didn't believe that Weber's departure had anything to do with the Tommy/Apax negotiations, expects PVH under its new leadership to continue searching for the right acquisitions.
"PVH continues to exceed expectations with the execution of the Calvin Klein growth strategy. And with Calvin Klein and Arrow, it now has a proven ability to integrate acquisitions. That's their model," the analyst said.
Chirico, who is a certified public accountant, began his career at PVH in 1993 as vice president and controller. He became executive vice president and chief financial officer in 1998 and president and chief operating officer last year. He has been a director at Dick's Sporting Goods since 2003, and became chairman of the audit committee at Dick's in 2005. Chirico is now PVH's seventh ceo in the company's history.
"Weber has left? I saw him at MAGIC last week. He's been wanting to be ceo of this company for such a long time. He's been grooming for this position for over 30 years," said one institutional investor.
A portfolio manager in New York couldn't believe the news either, but added that "Mark has one of the biggest egos in the world." The manager believes that differences in management style were Weber's downfall.
Laurence C. Leeds Jr., chairman of Buckingham Capital, "I think Mark Weber did a terrific job. I think he's a fine leader who was instrumental in PVH becoming the great company that it is. I'm glad Bruce Klatsky is staying on as chairman. Manny Chirico is a terrific executive and a fine leader. The building blocks are in place. Tom Murry is still there [CKI president] and the most important part of the business, Calvin Klein, will continue to flourish ... It will be business as usual."
Joe Gromek, president and chief executive officer of Warnaco Group Inc., said of his Calvin Klein licensing business with PVH, "Our relationship with PVH and Tom Murry has been excellent and we expect that to continue. We work collaboratively with both of those guys."
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