Most Recent Articles In Mergers and Acquisitions
Latest Mergers and Acquisitions Articles
- CIT Provides $40M to TowerBrook Capital for J. Jill Acquisition
- Karstadt Owner Benko Said Bidding for Kaufhof
- Cherokee Acquires Everyday California
More Articles By
Where do two apparel giants meet to discuss one of the most buzzed about deals in recent fashion history? Bruce Klatsky can cite several examples.
In Phillips-Van Heusen Corp.’s two-year period of negotiations to acquire Calvin Klein Inc., Klatsky, then PVH’s chairman and chief executive officer, met with Klein and his business partner Barry Schwartz dozens of times. There were multiple lunches at the Royalton hotel, meetings at CKI’s headquarters on West 39th Street, and discussions at various lawyers’ offices. Once, Klein even took a helicopter to Klatsky’s country home — then in Garrison, N.Y. — to spend some quality time with the executive and his wife, Iris.
“Calvin and I spent a great deal of time together,” Klatsky, who is now a partner in private equity firm LNK Partners, recalled. “He was very concerned about what the strategy would be, whom we would market the brand to, what we would do about diffusion brands, about international, what our view was on fragrance, how we would manage the relationship with Warnaco [Group Inc.] on jeans and underwear. This was his name and I imagine an extraordinarily difficult and important decision for him.”
The acquisition, which was unveiled on Tuesday, December 18, 2002, was the culmination of those lengthy negotiations. The deal closed in February 2003, and was estimated to be worth as much as $700 million: PVH bought the brand for $430 million in cash, with additional payouts of as much as $270 million in the coming years. Klein and Schwartz immediately pocketed $215 million in cash and PVH stock. As part of the deal, PVH maintained a separate and distinct culture for CKI, keeping largely intact the headquarters and the management team headed by president and chief operating officer Tom Murry. Schwartz left the company after the deal was completed.
The acquisition was a major moment for Klein and Schwartz, but also for PVH, and, specifically, for Klatsky, the personable executive who has been credited in the past for being the main reason Klein agreed to sell to the shirt manufacturer. PVH’s competitor for the acquisition was reportedly VF Corp.
“They couldn’t get the pieces together,” Schwartz said of VF shortly after the acquisition. “They only would buy us if they could buy the other Warnaco pieces. Both PVH and VF very actively pursued us. We likened it to a horse race. Whoever gets to the finish line first wins. PVH got to the finish line first.”
PVH came with plenty of experience. By the late Nineties, the company had already successfully acquired and rejuvenated the Izod and Bass brands, setting up an infrastructure that gave it an edge in the negotiations.
“We really built a very strong platform to run a company,” Klatsky noted. “We needed to make a transforming acquisition, and we wanted to acquire a company of substance, a great brand. We had a strong view that in the 21st century, it’s very hard to build an enduring brand because of the extraordinary media costs to market and communicate with the consumer. While brands have been built, the ability to make an acquisition required a brand that didn’t need to be fixed but was already strong. In my mind, one of the arguably greatest brands in the world is Calvin Klein.”
Klatsky first reached out to Schwartz in 2000 and the two began “talking and talking and talking. Barry and Calvin came to the conclusion that they wanted to sell the business and we were a candidate, and there ensued a fairly intense period of negotiations” — one that heated up particularly in the second half of 2002.
“Calvin was very much concerned with the future of his name, and what was going to go on with his name and what we felt about various components of the business,” Klatsky said. “He was very concerned with the brand presence and marketing image and what we would do and what our capabilities were. Both he and Barry were very concerned with the economics.”
Like any business transaction, the deal came with its share of challenges. For instance, Klein appointed Allen Grubman, the New York entertainment attorney, and entertainment mogul David Geffen, a longtime friend of Klein’s, to advise him on the deal. “They were two brilliant men and then it was me, Brucey,” the affable Klatsky said, laughing. “It was a tad intimidating, from time to time, to get my morning phone calls that Geffen was ticked about this or that.”
Klatsky, naturally, wouldn’t disclose details of any discord, but in the process, he became increasingly familiar with Klein’s genius, making the acquisition all the more attractive to PVH.
“Calvin understands how to catch the consumer’s eye and how to communicate with the consumer,” Klatsky said. “He had very strong opinions on media and media selection. He knew how to communicate the simplicity, the elegance of his product, the way to attract a consumer who was focused on product, and the importance of product, whether it was the fit, its simplicity or universality.”
To be able to pay the steep price for CKI, PVH needed to aggressively grow the business. Post-acquisition, the company set up a licensing structure, with the designer-level Calvin Klein Collection, the bridge ck Calvin Klein line, and the lion’s share of business coming from the better-priced Calvin Klein white label tier.
By all accounts, the acquisition and subsequent integration of the CKI business into PVH has been a hit. Today, the Calvin Klein licensing business represents about 12 percent of PVH’s revenues, and an estimated 40 percent of profitability. PVH plans to continue to grow the business aggressively.
“We believe over the next five years we can layer on additional $2 billion to $3 billion of global retail sales,” Emanuel Chirico, the current chairman and ceo, said at PVH’s most recent annual shareholders meeting in June. “By 2010, we believe global retail sales will be in excess of $7 billion.”
Klatsky admitted the entire process — crowned by signing the final papers at pr guru Howard Rubenstein’s office — was probably the most exciting experience of his 35-year career at PVH.
“It was an enormously challenging negotiation because I was dealing with two icons of our industry, Barry and Calvin, and we were competing with a giant of our industry with many more resources than we had,” he said, referring to VF’s interest in CKI. “We realized that we fought, and fought, and fought, and now we had to deliver. We were very excited but we needed to get back to work right away, because this was a very large and meaningful acquisition for PVH. We even thought about changing the name of the company to Calvin Klein. We decided out of respect for our forbearers that we would leave it as it was.”
Looking back at the process, however, Klatsky wouldn’t change a thing. “To have done it differently would have been to not do the deal,” he said.