NEW YORK — Warnaco Group Inc. is aiming to become a Calvin Klein powerhouse.
The company on Tuesday said it agreed to purchase the licenses and corresponding wholesale and retail businesses for several Calvin Klein-related entities from Florence-based Fingen SpA for 240 million euros, or $286 million at the current exchange rate.
The deal, which is expected be completed in the first quarter of 2006, involves the Calvin Klein Jeans and accessories license for Europe and Asia and the ck Calvin Klein bridge sportswear and accessories license in Europe for a 40-year term. In addition, Warnaco will take over the worldwide Calvin Klein Collection apparel and accessories license from Fingen from 2008 to 2013.
"We'd been having opportunities to review several different companies that different investment bankers have approached us with," Joseph Gromek, president and chief executive officer of Warnaco, said in an interview. "By far, the Fingen businesses that we are acquiring were at the top of our list. For us, this was a very strategic move. It completes our company in terms of the Calvin Klein aspects. We are focusing on our core competencies, which is manufacturing jeans. It gives us the geographic expansion and also gives us a direct-to-the-consumer channel, and it also expands our relationship with the Calvin Klein organization."
In fiscal 2005, Calvin Klein Jeans is projected to generate sales of about $240 million in Europe and Asia.
The deal will have no impact on the existing U.S. licenses with Kellwood Corp. for the Calvin Klein women's better sportswear line and with G.A.V. for the ck Calvin Klein bridge sportswear business.
Warnaco already owns the rights to produce Calvin Klein underwear and also has the U.S. license for the Calvin Klein Jeans label. The deal will likely help boost the brand's overall growth efforts worldwide.
"We always like to have as many businesses within one licensee as we can," said Tom Murry, president and chief operating officer of CKI. "It makes it easier to coordinate ... From a strategic and a distribution standpoint, it's very advantageous."
"Over time, with the global network and organization that Warnaco has in place, the operation of the businesses will be more efficient and the synergies and coordination aspects will be better," he added.With these new licenses, Warnaco's Calvin Klein-related revenues are projected to grow to more than $900 million to 38 percent in 2006 from 28 percent.
Since emerging from bankruptcy in 2003, Warnaco has been moving at a healthy clip in an effort to create a worldwide presence. In 2004, the company bought Op, which, like the new deal, is part of the firm's strategy of developing brands in its core competency. It has also launched the licensed Chaps sportswear and denim label at Kohl's and Mervyn's, and introduced Michael Kors swimwear.
Warnaco is funding the acquisition, which was advised by J.P. Morgan Securities, with cash and borrowed money. Citigroup Global Markets Inc. and J.P. Morgan are providing financing for the transaction.
"Acquiring the rights to Calvin Klein Jeans on a worldwide basis is something that is very significant to us," Gromek said. "It will help us in terms of going direct to the consumer," he said. The combined companies will have more than 350 directly managed freestanding stores and shop-in-shop concessions worldwide, as well as more than 90 doors by third-party partners.
Gromek added that the deal will "absolutely" help the overall growth of the Calvin Klein brand. "That's key to our strategy," he said. "When we see the opportunities in certain countries where Calvin Klein underwear has been very successful, like Spain, and in the U.K., where the jeans business is underpenetrated, we believe we can take full advantage of that situation.
"Asia is really where the excitement is," he said. "The businesses we are acquiring have great strength in Korea. China, obviously, is the most exciting possibility in terms of geography. And putting these two major product categories together should create a dynamic platform for growth."
Calvin Klein Collection was just transferred from Vestimenta to Fingen in September, and this move comes even before the first fruits of that licensing deal have shipped to stores for spring.
"This gives Warnaco an opportunity to absorb and integrate the bridge and the jeans business and then in 2008 take over Collection," said Murry, of the timing of the Collection transfer.
Gromek added that Collection will play a crucial role at Warnaco, which will maintain the high manufacturing levels. "We believe that the Collection business is an important umbrella for the overall Calvin Klein brand, and we will be very supportive of it," Gromek said."We think there are significant growth opportunities of leveraging Warnaco's international platform with the Calvin Klein brand," he said.
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