TOMMY’S INTEREST IN CALVIN KLEIN JEANS SEEN PERCOLATING

Byline: Lisa Lockwood

NEW YORK — Could Tommy have his eye on Calvin again?
According to sources, Tommy Hilfiger Corp. officials may be interested in making another bid for Calvin Klein, but this time it would be the CK Calvin Klein Jeans business, which is licensed to Warnaco Group.
Warnaco, which filed for Chapter 11 bankruptcy court protection last June, plans to sell some of its assets, which may include the license for the Calvin Klein Jeans business and the directly owned CK Underwear business, which in fiscal 2000 generated combined wholesale volume of $943.2 million.
Last year, Hilfiger came extremely close to a deal to buy Calvin Klein Inc., but talks collapsed at the last minute. That proposed deal, however, didn’t include the CK Jeans business.
Sources said that Bear, Stearns & Co. Inc., which was hired in August as Warnaco’s exclusive financial adviser, approached Hilfiger officials privately to see if they were interested in buying the CK Jeans license, and apparently they are. As reported, Hilfiger is also in the running to buy Brooks Brothers.
Prior to Warnaco’s bankruptcy, sources said Linda Wachner, chairman and chief executive officer of Warnaco, had indicated she would be willing to sell the jeans business for between $600 million and $650 million, but observers believe the company might have to sell the business for less now. Although market sources said the bankruptcy didn’t do anything to taint the Calvin Klein brand, they point out that in this difficult retail environment, companies aren’t willing to pay the same multiples as before. “It would be a field day to buy something in this market. You can get it cheaper,” said one source.
In addition, as part of Warnaco’s settlement with CKI in January over trademark infringement, Warnaco agreed to curtail its shipments of CK Jeans to warehouse clubs, which would make a big dent in its volume. When the lawsuit was filed in May 2000, Barry Schwartz, chairman of CKI, said he received a list two months earlier of where Warnaco did most of its business in 1999, and the top six accounts included Costco, Sam’s Club and B.J.’s. In fact, sources said one-third of Calvin Klein jeanswear sales had gone to warehouse clubs and discounters. The settlement reportedly called for Warnaco to gradually cut back its distribution to warehouse clubs and discounters to roughly 10 percent over the next few years.
Last week, it was reported that Warnaco has identified four “assets” it would sell and had confirmed that intimate apparel maker Lejaby, a European firm not included in the bankruptcy, was on the block. Penhaligon’s, a British retailer of spas and toiletries that Warnaco purchased in 1999, is also up for sale, according to sources familiar with the reorganization effort. Sources indicated that two former executives of the Warner unit are seeking financing to acquire that operation. Warnaco has disclosed nothing about its Calvin Klein jeanswear and Chaps by Ralph Lauren licenses.
A Manhattan Bankruptcy Court extended until Feb. 6 the deadline for Warnaco to file a plan of reorganization and complete a business plan.
According to sources, a book on Warnaco’s assets is expected to be issued in a few weeks. Tony Alvarez, chief restructuring officer of Warnaco, didn’t return a phone call seeking comment, and Hilfiger officials declined comment. However, it was learned that Alvarez has drawn up a list of companies that he considers possible buyers of the CK Jeans business and has presented it to Klein executives.
Klein officials have reiterated they want the CK Jeans license to end up in the hands of an established company. Observers believe Klein would be happy to have his jeans produced by Hilfiger, the $2 billion diversified apparel company, which has been on a mission to find new growth vehicles.
Last year, Hilfiger’s $890 million bid for CKI was rejected, and its negotiators gave up on the deal. With lots of cash on hand, Hilfiger and his partners, Silas K.F. Chou and Lawrence S. Stroll, were eager to make the CKI acquisition and saw vast potential in the Klein business, particularly on the international front. The agreement would not have included CK Jeans, which are licensed to Warnaco. At the time of the negotiations, Hilfiger approached Warnaco about buying its CK Jeanswear license, viewing the jeans business as an essential component of the Klein empire. But Wachner declined unless Hilfiger was willing to pay what his negotiators reportedly considered an exorbitant amount: $1 billion. And such a deal with Warnaco would have pushed Hilfiger’s total cost for the Klein acquisition to $1.89 billion.
CKI eventually decided to hang on to its business.

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