WWD.com/beauty-industry-news/fashion-features/a-hilfiger-sale-nears-apax-said-in-lead-with-pvh-as-partner-555562/
government-trade
government-trade

A Hilfiger Sale Nears: Apax Said in Lead With PVH as Partner

A sale of Tommy Hilfiger Corp. is getting closer, and a group led by Apax Partners Inc. is in the lead.

View Slideshow

NEW YORK — A sale of Tommy Hilfiger Corp. is getting closer, and Apax Partners Inc. is in the lead.

But the private equity firm isn’t flying solo — it has two teammates in its slipstream in Phillips-Van Heusen Corp. and Fred Gehring, chief executive officer of Tommy Hilfiger Europe.

On the heels of an Apax-PVH-Gehring bid is an offer from Oaktree Capital Management, according to financial sources. On Wednesday, details of the bids were sketchy. But as previously reported in WWD, first-round bids for Hilfiger were due last week.

Several financial sources said Wednesday that a deal for Hilfiger would happen soon. No acquisition price was mentioned, but banking and fund managers said the Apax-PVH-Gehring scenario would likely fetch a higher price than if Apax or another financial player went solo on the deal. A straight financial play would put the price tag of Hilfiger at around $15 a share, while an Apax-PVH-Gehring deal could garner as much as $20 to $22 a share.

With 91.77 million shares outstanding, the higher bid places the purchase price between $1.84 billion and $2.01 billion.

At $22 a share, the price represents a seven times multiple of adjusted pretax earnings. Acquisitions of fashion and retail firms have been averaging a multiple of between 6.5 and seven times over the course of this year, which has been one of the busiest ever. In the first nine months of 2005 there have been 395 deals, which is more than the total number of transactions for the full year in either 2001, 2002 or 2003.

Regarding Tommy Hilfiger’s employment contract, sources said it would be bought out for $150 million. It’s unclear if Hilfiger would have a role in the acquired company or just collect a percentage on sales of branded goods, as in his current employment contract. Hilfiger’s current agreement pays him between $14 million and $18 million a year.

Shares of Hilfiger jumped in Wednesday trading on the New York Stock Exchange, closing up 5.7 percent at $17.75, approaching a 52-week high. The shares have risen about 90 percent year-over-year. The increase Wednesday came despite Hilfiger reporting, after the market closed, its second-quarter results, which showed its U.S. wholesale volume fell 37 percent during the period.

Apax is the private equity firm that helped Phillips-Van Heusen acquire Calvin Klein and also has invested in Spyder Active Sports. An Apax Partners spokesman declined comment. PVH could not be reached for comment.

Apax’s investment in PVH was $250 million. Based in New York, Apax has about $12 billion under management. Typically, it makes investments of between $50 million and $300 million.

A spokeswoman for Gehring declined comment.

Financial sources said Apax and Gehring submitted an offer to Hilfiger in June. PVH was not in the picture at that time, and just recently came on board. Gehring has been working with principals from Apax’s London office. Now with PVH involved, Apax’s New York office is in the loop.

Hilfiger’s European business was once completely licensed and Gehring built it up into a successful operation. The company bought it back in 2001 for $200 million and runs it as a wholly owned subsidiary. At the time of the sale of the European business, Hilfiger Europe’s revenue was $102 million. Now it has sales of about $532 million and has soared as Hilfiger’s American business has stumbled.

Last week, financial sources said several financial firms had submitted bids for Hilfiger. A source close to the Hilfiger sale process said there is no “official timetable” to sell the apparel firm.

Regarding its preliminary second-quarter results, the company said net revenue for the quarter ended Sept. 30 fell 6.4 percent to $500 million from $534 million in the same period last year.

The company said in a statement released after the market closed, “Higher margins earned in international wholesale and retail, however, compensated for the decline in U.S. wholesale revenue. As a result, the company expects its operating income for the second quarter of fiscal 2006 to be somewhat higher than that of the comparable prior-year period. Net income for the second quarter of fiscal 2006, however, is expected to be below that of the prior year, owing to an unusually low effective tax rate in fiscal 2005.”

As previously reported, Tommy’s actual quarterly report is being delayed “pending the finalization of its annual report” as it restates results for prior years, the firm said. “The company expects to file its annual report on Form 10-K and quarterly reports on Form 10-Q for the year ended March 31, 2005 in the near future,” Hilfiger said in Wednesday’s statement.

In the statement, the company said international wholesale revenue in the quarter rose 10.2 percent to $215 million from $195 million in the prior year. “The increase was driven primarily by continued momentum in Europe, where wholesale revenue grew by approximately 11 percent,” Hilfiger said.

Meanwhile, retail revenue climbed 12.3 percent to $146 million from $130 million last year. “Comparable sales at U.S. Company stores, the largest retail division, increased in the mid-single-digit percentage for the quarter.”

Regarding its U.S. wholesale revenue for the quarter, it declined 37.6 percent to $118 million from $189 million in the prior year. “Volume declined comparably in each of the men’s wear, women’s wear and children’s wear divisions, as a result of lower order levels from U.S. department stores,” the company said in a statement, adding that licensing revenue dropped to $19 million from $20 million.

International wholesale sales and retail revenue are both expected to grow in the next fiscal year, while U.S. wholesale sales are expected to decline 35 percent, “from approximately $680 million in fiscal 2005, a somewhat greater decline than its earlier estimate of approximately 30 percent,” the company said, adding that licensing sales are forecast to be flat year-over-year, at around $74 million.

View Slideshow