NEW YORK — While Tommy Hilfiger Corp. hasn’t officially hung out a “For Sale” sign, sources indicate there appear to be some vigorous discussions going on with suitors Jones Apparel Group and VF Corp.
Faced with a slowdown in sales, particularly in the core men’s area, and management shifts, Hilfiger, the $1.8 billion apparel firm, is reportedly weighing various alternatives that may include a sale to a larger apparel conglomerate.
Hal Reiter, president of Herbert Mines Associates, the executive search firm, said he’s still conducting the ceo search for Hilfiger, although one source thought the search was put on hiatus. Last year, Joel Horowitz, chairman and ceo of Hilfiger, announced he would step down when his contract expires in March 2004. He was unavailable for comment Thursday.
Tommy Hilfiger’s stock closed Thursday at $7.93, down 3.5 percent or 29 cents on the New York Stock Exchange. Hilfiger’s current market capitalization is $718.3 million, off from its peak of over $3.5 billion.
Sources said they don’t believe there’s a formal book out on Hilfiger, but indicated the company is “clearly in play” and if there’s an alternative that the board finds attractive, it will seriously be considered.
Hilfiger is seen as particularly vulnerable to a takeover because as of Dec. 31, 2002, it is sitting on $485.6 million in cash and cash equivalents. For the past three years, it has experienced declining sales in its men’s wear business. It has also been working to pare down its debt. For the third quarter ended Dec. 31, 2002, Hilfiger’s long-term debt was $350.2 million, down from $600.4 million. Further, Hilfiger’s cochairmen Lawrence Stroll and Silas Chou both stepped down last year to pursue other business opportunities.
From 1989 (when Stroll and Chou bought the company and its license agreements from Murjani International) to 1999, Hilfiger’s business experienced high-flying momentum as the company launched a slew of products and categories. Since 1999, Hilfiger has called its men’s wear “a mature business,” and has relied on its women’s lines and international sales for growth.
Market observers believe VF, which last year generated $5.08 billion in sales, would be a strong candidate to buy Hilfiger, “if the price were right.” Last year, VF was beat out by Phillips-Van Heusen in a bid for Calvin Klein. One source said Hilfiger would make a lot of sense for VF since it’s in the jeans business and is a volume commodity player. “Tommy is a little more upscale, but it’s not getting into the luxury category,” he said.
It is also believed that Jones, whose volume last year was $4.34 billion, would be eager to take on the Hilfiger business if it lost its Ralph Lauren licenses, which appears inevitable.
“I think there a conversations going on with Jones and VF,” said Elaine Hughes, president and chief executive officer of E.A. Hughes Associates, an executive search firm. “The Tommy Hilfiger brand would be great for the VF portfolio, in terms of price points since it goes after a better-price point. It rounds out Mackey’s [McDonald, VF chairman] product portfolio. Jones would also benefit. Jones has put a lot of money behind jeans production with Polo Jeans and Gloria Vanderbilt. An investment in a jeans and bottoms business would bring a good sourcing synergy. If they have a synergy at the back end of these businesses, it affects the bottom line.”
One problem facing Peter Boneparth, ceo of Jones, is that he can’t complete a deal until he resolves the issue with its Ralph Lauren licenses. “He can’t buy anything until he gets it done. His hands are tied enormously,” said one source.
Apparently, Polo is getting itself prepared to take back the Lauren licenses. Sources said Jackwyn Nemerov, former president of the Jones Apparel Group, has been contacted about running the businesses for Polo. Her non-compete clause with Jones Apparel Group expires in June 2004, and it could take that long for Polo to get the licenses in place. Otherwise, Polo would have to buy Nemerov out of her contract. “Polo needs her and they’ll have to pay,” said one source.
Should the licenses revert to Polo, the spring 2004 line would likely be part of the so-called transitional period and coincide with the expiration of Nemerov’s noncompete agreement. Nemerov, who’s considered an excellent merchant, was instrumental in the development of the Lauren brand at Polo. In addition, Polo already has begun lining up potential designers for the lines from among its existing team.
As reported Wednesday, each of the Lauren businesses at Polo — which account for about $1 billion in sales — had a tough quarter. The Lauren line had difficulties early in the quarter, the Ralph business experienced some hits and misses, and Polo Jeans ran into problems in the back half of last year that continued into the first quarter.
One market observer said he feels any company that acquires Hilfiger would most likely be a strategic buyer, rather than a financial one, since financial players are more comfortable with growth opportunity and having top management stay in place.
Anita Britt, executive vice president of finance for Jones, said the company had no comment on acquisition rumors.
A VF spokeswoman couldn’t be reached for comment Thursday, but said last week: “We are actively looking. The company is concentrating on [acquisitions with] high returns in our profitable areas, which are jeanswear, intimate apparel and our outdoor businesses.” She added, “We remain interested in a lifestyle sportswear brand that could cover multiple areas.”
As for timing, she said, “We are hopeful to have something that we can do this year, but it will have to be the right opportunity, the right price and the right time.”