IS CALVIN IN TALKS? POSSIBLE JOINT VENTURE WITH HDP FOR CK LINE

Byline: Eric Wilson / With contributions from Samantha Conti

NEW YORK — Calvin Klein Inc. may have a big deal in the works.
The designer, who settled out of court last week after a high-profile licensing dispute with the Warnaco Group, is now said by sources to be in talks with Italian conglomerate HdP about an ambitious joint venture involving his CK bridge sportswear collection.
HdP is the parent of apparel producer GFT Net, which currently holds the Calvin Klein men’s license. HdP was an early suitor for Klein’s business when he put it up for sale in 1999. Klein, however, failed to come to terms with HdP and other bidders, including Tommy Hilfiger and Warnaco.
The new talks with HdP, however, do not involve an actual sale of the business, nor a pure license, but rather a joint venture that will enable Klein to grow internationally without turning to the stock market for funds.
Klein and his partner Barry Schwartz took the company off the block in June and the designer has since stated that the business is no longer for sale.
Klein and Schwartz could not be reached for comment. A spokesman for CKI in New York declined to comment, and a spokeswoman for GFT in Milan denied there were any plans to acquire the women’s licenses.
But what is clear is that after the distractions of the high-profile legal dispute between Calvin Klein and Warnaco, a war that raged for more than six months, and the thwarted attempts to sell his business, Calvin Klein is ready to get back to serious business.
Klein is reportedly hunting for real estate in Milan and sources indicated the designer is close to a deal for a new store in Paris, on Avenue Montaigne. His previous Paris store was a franchise and was closed last year.
The designer is said to be unhappy with the quality of production of the women’s CK sportswear business in Europe, which is licensed to Sky Co. SpA, a joint venture between CKI and Stefanel formed in 1995 that also covers distribution to the Middle East. That deal, while called a joint venture, is said to be more than 90 percent financed by Stefanel.
A spokeswoman for Stefanel said the companies are “currently renegotiating the contract,” but would not comment further.
The CK men’s and women’s sportswear business distributed in U.S. department stores is owned, produced and operated by CKI, while GFT, Calvin Klein’s men’s wear licensee, produces men’s wear including tailored clothes under the CK label for the U.S. Among its lines, GFT also makes men’s Calvin Klein black label suits in the U.S. and men’s Calvin Klein white label in Europe.
But the complicated distinctions between the men’s CK lines, particularly in the U.S., have been cause for confusion, as GFT’s CK men’s business is considered to officially be a “diffusion” of the CK sportswear collection made by CKI. This is a point that Klein and GFT are said to be working to clarify as part of Klein’s overall corporate strategy to untangle the complicated logistics of his operations, much as the company set up a branch office in Tokyo last January to work with its existing licenses in the Asia-Pacific region.
The two companies have also been described as enjoying one of the industry’s most positive relationships between licensee and licensor, one that may have inspired the potential move of the women’s European CK licensee from the Sky joint venture to GFT. In December, GFT landed industry veteran George Ackerman as president and chief operating officer of the CK Apparel Corp., recruiting him from the Daryl K. division of Pegasus Apparel Group.
Reorganizing the women’s CK license would also have positive ramifications for HdP’s GFT operation, which lost the Giorgio Armani Collezioni women’s license last year.
But there’s more at play in these negotiations than just moving the license, as several sources indicated that talks with HdP extend beyond the scope of the European CK women’s business. One mentioned scenario would bring CKI’s domestic men’s and women’s CK sportswear business to GFT, while another would incorporate a bigger chunk of the global Calvin Klein apparel business under the HdP umbrella.
It could not be learned whether Calvin Klein’s signature women’s collection business would ultimately be part of the deal. Klein licensed the women’s collection to the Mariella Burani Fashion Group in Reggio Emilia, Italy, in 1999. At the time, the deal was made with Burani’s Selene SpA division, although the company no longer uses that name and simply operates under the Burani umbrella.
That deal commenced with Klein’s spring 2000 collection and lasts until 2009. Giovanni Burani, co-chief executive officer of Mariella Burani, said on Tuesday that everything was normal with the relationship. However, sources said that Klein’s business only represents about 6 percent of Burani’s sales and is not a strategic license for the company, which also owns Mila Schon, Dimensione Moda and Gabriella Frattini.
The apparent talks between Klein and HdP indicate that the Italian firm has found a new love of fashion. HdP had dropped out of the Klein bidding a year ago under speculation that the company no longer considered the luxury fashion market part of its strategic business plan, reportedly preferring to concentrate on publishing and Internet businesses, among others.
Losses at GFT had dented net income for HdP over much of 1999, leading to rumors that its biggest shareholders had lost interest in its fashion division.
When Calvin went on the market, virtually every major acquisitions company, and some unexpected names, took a look at the prospect. Liz Claiborne Inc., Jones Apparel Group, Gucci, LVMH and Tommy Hilfiger Corp. were interested in Klein’s books, with Tommy Hilfiger and Warnaco’s Linda Wachner making serious advances, but ultimately failing to conclude a deal or to match Klein’s $1 billion asking price.
HdP emerged as a serious contender in January, with strong interest from its chief executive officer, Maurizio Romiti, who then was striving to turn the company into a luxury goods empire, along the lines of LVMH or the Gucci/Printemps-Redoute alliance.
HdP, or Holding di Partecipazioni Industriali, is an investment company controlled by the Fiat group that counts GFT, Valentino and Fila among its various divisions. The company was believed to have a $600 million cash pile at the time and access to more financing through the Romiti and Agnelli families.
HdP has also acquired Valentino for $300 million two years ago and bought Joseph Abboud in June for $65 million. Its interest in Klein apparently faded by February, when the company bowed out of the bidding due to the price of the company and Klein’s tangled network of long-term licenses. After talks with Hilfiger and Warnaco failed in the coming months, Klein declared all-out war on Wachner and her company, declaring their management of licensed CK business had hindered potential deals, among other allegations.
Calvin Klein’s licensed products generate $2.5 billion in wholesale volume, or $5 billion at retail. Calvin Klein Inc. earns over $150 million in licensing income. Some $60 million in royalty payments is generated by Warnaco Group, which owns the Calvin Klein Underwear business and has the license for Calvin Klein Jeans.

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