CALVIN ON WARNACO WATCH
Byline: Lisa Lockwood / with contributions from Karyn Monget / Vicki M. Young
NEW YORK — Calvin Klein and Barry Schwartz are keeping a very watchful eye on prospective deals for the Calvin Klein jeanswear and underwear businesses currently licensed or owned by the troubled Warnaco Group.
Warnaco is widely expected to eventually sell off certain assets — possibly the Calvin Klein businesses — to offset serious financial difficulties.
Klein and Schwartz, who have a lot at stake should Warnaco unload the businesses or resort to filing Chapter 11, are said by sources to be open to either a joint ventures or new licensing agreements.
And although Klein and Schwartz declined to divulge whether any discussions have taken place, Klein told WWD on Wednesday, “We expect anyone interested in buying the underwear and jeans companies would want to have us involved in the process and would want a close working relationship with us. I would expect they’d want to consult with us in the future direction of the company.”
Linda Wachner, chairman of Warnaco, however, still controls the labels in question. “We have no comment on Warnaco agreements or market rumors,” said Wachner Wednesday night, in response to questions about the future of the Klein businesses. Wachner acknowledged late last month that she might have to sell assets. UBS Warburg has been hired as a financial adviser to Warnaco and is reportedly shopping an asset deal around.
Two of Warnaco’s crown jewels are its CK Underwear and Calvin Klein Jeanswear businesses, which in fiscal 2000 generated combined wholesale volume of $943.2 million.
One possible scenario is that Klein might consider buying back the jeans and underwear businesses from Warnaco, along with a new joint venture partner.
When Designer Holdings sold the CK Jeanswear business to Warnaco in 1997, sources indicated that Schwartz and Klein were against the sale because they felt Warnaco had too much of Klein’s business in its hands.
“Calvin Klein has no veto rights. There’s no requirement to have CKI sign off on the bill,” said William Finkelstein, then senior vice president and chief financial officer of Warnaco, at the time of the Designer Holdings acquisition.
Warnaco paid $360 million for the Calvin Klein Jeanswear business in 1997, and the business in fiscal 2000 generated close to $700 million.
Warnaco bought Klein’s men’s underwear business and the worldwide trademarks for women’s underwear in 1994 in a deal worth $64 million, plus ongoing fees. The women’s underwear business came under Wachner’s aegis in early 1995.
Warnaco would no doubt be seeking a premium on a sale of the two businesses and some sources estimated the two could fetch in the neighborhood of $500 million. According to industry executives, a strategic acquisition of one or more of Warnaco’s main brands would most likely come from some big public companies, such as VF Corp., Sara Lee Corp. and Kellwood Co.
As reported, at its annual meeting Tuesday, Mackey McDonald, chairman and chief executive officer of VF Corp., told shareholders VF is always interested in possible deals, adding: “There are a lot of companies in our industry that are struggling financially.” He said the company might consider a more upmarket brand if the right opportunity came along. “We basically look for areas to fill out our portfolio, to fill out our distribution to new retail channels or customers that we aren’t serving.” He declined to comment on Warnaco or the Calvin Klein lines.
Warnaco’s stock closed Wednesday at 69 cents, up from 60 cents on Tuesday, and the stock price is a source of intense pressure on Wachner. In addition, the company is currently in discussions with lenders to secure permanent amendments to its bank agreements, which were extended to May 16.
Warnaco’s annual meeting, originally scheduled for early May, has been postponed until later in the month, but no new date has been set yet.
A majority of executives from the retailing, intimate apparel and apparel fields generally said they believe a Chapter 11 scenario would be a last ditch effort on Wachner’s part to salvage her company, mainly because it is a company she has raised and nurtured like a baby, since she took it over with a group of investors in an LBO in 1986.
One top executive at a giant textile concern, who did not want to be identified, said he believed filing for bankruptcy protection was “unlikely,” noting, “I think Linda will be alright. She’ll do fine and get through this. The big question now is price when it comes to selling one or several assets to keep afloat.”
Seeking bankruptcy protection would most likely nullify Warnaco’s licensing agreement for Calvin Klein Jeanswear, which the firm has locked up until 2040.
One insider at Warnaco observed that Wachner is “holding her cards very close to the vest, and is not yet ready to make her move — whatever that is.”
Financial experts don’t expect Warnaco to file for Chapter 11 bankruptcy court protection simply because the company’s assets serve as collateral for its financing agreements. The banks get more value back under the current arrangement than they would if a bankruptcy petition is filed. Because of that, they might be inclined to extend further support.