By  on December 6, 2005

Tommy Hilfiger probably never expected his 20th year in business to be so tumultuous.

After completing a deal to buy Karl Lagerfeld's business late last year, Hilfiger's $1.8 billion company went through arguably the most challenging year in its history.

The year was marked by the settlement of an 11-month U.S. Attorney's office investigation over commission prices; the continued deterioration of its U.S. wholesale business; J.P. Morgan being hired to find a buyer for the firm; a reality TV show called "The Cut" starring Tommy Hilfiger; an aggressive march on Europe; new Manhattan headquarters on West 26th Street, a mega-20th anniversary fashion show featuring more than 100 models and a lively video, and even overtures from Wal-Mart to buy the entire company.

The government investigation weighed heavily on the company. But once that headache was settled in August — with Hilfiger required to pay additional federal income taxes and interest of $18.1 million — the company could move forward. "Everyone's feeling very positive, and we're happy that it's over. It was a terrible distraction," said Hilfiger at the time.

But as soon as things calmed down, they quickly heated up when it was reported a week later that Hilfiger's company was for sale and that J. P. Morgan, working with Goldman Sachs, had been quietly shopping the firm around. And they were seeking a hefty price.

Sources said the asking price was at least $1.82 billion, but could go as high as $2.16 billion. About a month later, Wal-Mart Stores Inc. shockingly emerged as a potential suitor. Apparently, Wal-Mart initiated the idea and began due diligence. But Wal-Mart never submitted a bid, and Apax Partners, the investment firm that financed Phillips-Van Heusen's purchase of Calvin Klein Inc., emerged in the lead. Apax had teamed up with PVH and Gehring to buy the company, and sources indicated that the Apax-PVH-Gehring deal would bring in as much as $20 to $22 a share.

One thorny issue has always been Hilfiger's employment contract. Sources said it would most likely be bought out for $150 million. It's unclear whether Hilfiger would have a role in the acquired firm, or just collect a percentage on sales of Hilfiger merchandise, as per the terms of his current deal. That contract pays him between $14 million and $18 million a year.

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