CLOSING IN ON CALVIN? HILFIGER EXECS SAID TO HALT STOCK TRADES
Byline: Lisa Lockwood / David Moin
NEW YORK — It looks like Tommy Hilfiger Corp. and Calvin Klein Inc. are closing in on a deal.
Sources said Friday that Hilfiger’s senior executives were advised not to buy Hilfiger stock late last week because an agreement could be announced as early as this week, and any aggressive selling-off of shares could be construed as insider trading.
“An announcement from Calvin is imminent,” said a source on Friday. “In the last 24 hours, senior executives at Tommy Hilfiger were directed not to trade in Tommy Hilfiger stock. That could signal a deal, probably Monday or Tuesday,” said another source on Friday.
As reported, Hilfiger held a board meeting last Tuesday, where Klein was a key topic.
Hilfiger’s lawyers have been meeting with Klein’s investment banking firm, Lazard Freres & Co. Also, Lawrence Stroll, co-chairman of Hilfiger, has been spotted up at the Klein offices getting a personal tour by Calvin Klein, Barry Schwartz, chairman of Klein, and Tom Murry, its president.
Reached for comment Friday, a Calvin Klein spokesman said, “We’re not going to comment on any specific company. Overall, the process for considering strategic options continues to go well.”
A spokeswoman for Hilfiger said, “We can’t comment on speculation.”
Still, some sources say there could be other suitors resurfacing, such as Liz Claiborne or Jones Apparel Group. A spokeswoman for Claiborne said, “We don’t comment on rumors,” and Jones executives could not be reached for comment. Linda Wachner, chairwoman and chief executive officer of Warnaco Group, another possible player for Calvin Klein, couldn’t be reached for comment.
Stroll and Silas Chou, co-chairmen of Hilfiger, are said to be anxious to acquire Calvin Klein and would run the business as an independent operation.
A Tommy-Calvin combination would not only unleash a public relations bonanza, but open up enormous possibilities, creating a multibillion dollar, mega designer house. Hilfiger’s added sourcing and factory capabilities would enable the company to take the Calvin Klein brand into new, untapped areas and build what are perceived as underdeveloped categories, like bridge and career sportswear. Most of what is sold at stores under the Calvin Klein label revolves around denim, underwear and fragrances. Under Hilfiger ownership, “There is no reason why Calvin Klein couldn’t go after the career, better and casual markets the way such firms like Jones New York, Ellen Tracy and Liz Claiborne have done,” said one retailer.
There is also the possibility that Hilfiger could buy back some licenses, and there are several categories that neither designer has yet touched, such as women’s activewear and gold-range sportswear. Costs could be cut, particularly through the consolidation of back- office operations, to accelerate design and product development efforts and formulate new marketing concepts.
Hilfiger would be buying the revenue flow from the array of Calvin Klein licenses, but more importantly, Hilfiger would also attain the rights to Calvin Klein brand name, one of the most recognized marks in the world.
Calvin Klein’s licensed products generate $2.5 billion in wholesale volume or $5 billion at retail, and the company earns over $150 million in licensing income. Its royalty stream is believed to be the highest in the industry. The company generates more than 90 percent of its worldwide volume through its licensees, including Unilever Ltd., which markets such well-known Klein fragrances as Eternity, Contradiction and Obsession.
Warnaco Inc., which owns the Calvin Klein Underwear business and has the CK Calvin Klein jeans license, brings in $1 billion in sales and provides an estimated $60 million in royalty payments to Calvin Klein Inc.
Among Klein’s other licensees are Marchon for eyewear, Selene for the women’s Collection line, Kayser-Roth for sheer hosiery, American Essentials for socks, Swatch for watches, Fairbrooke for coats, GFT Corp. for men’s wear and Rossi Moda for collection shoes.
At Hilfiger, the astronomical growth of the past 11 years was masterminded by Stroll and Chou. While Hilfiger’s business has stalled somewhat in recent months, it is aggressively seeking an acquisition to jump-start renewed growth and improve the outlook on Wall Street. Tommy Hilfiger stock has been trading at or near its 52-week low of 11 1/16. The company closed Friday at 13 167/256, up 39/256.
Last month, Hilfiger retained Morgan Stanley Dean Witter to review “strategic and financial” options, including the possibility of an acquisition and repurchase of company shares.
In October, Klein hired Lazard Freres to explore an outright sale, a joint venture or a merger. Klein and Schwartz, who founded the company in 1968, each own a 43 percent stake; the rest is held in family trusts.
As reported, Klein’s expectation was to reach an agreement by the end of the first quarter. Bids have reportedly topped $1 billion.
Klein’s mission the past few years has been to become a global brand. His fragrances, jeans and underwear have been sold in Europe since the late Eighties, and throughout the Nineties he has been on an aggressive path to expand his entire business internationally.
Currently, North and South America account for about 61 percent of Klein’s worldwide retail sales; Europe generates 29 percent, and Asia-Pacific, 10 percent.
There are Calvin Klein Collection stores in New York, Dallas, Paris, Zurich, Saint-Moritz, Seoul, Tokyo and Singapore. There are CK Calvin Klein stores in London; Lisbon; Bergamo, Bologna, Milan, Rome and Catania in Italy; Moscow; Barcelona; Madrid; Bilbao; Tel Aviv; Kuwait City; Al Khobar, Jeddah and Riyadh in Saudi Arabia; Dubai; Cannes; Turkey; Kuala Lumpur; Tokyo, and Singapore.
Jeans stores are operated by the Fratini Group, which has the license for CK Calvin Klein Jeans and CK Calvin Klein in Europe. There are CK Jeans stores in Hong Kong, the Philippines and the U.K.
Klein, who is arguably the most recognized designer brand in the world, is well known even in places where he has no product. Considered a master of clean, modern and minimalist collections, Klein has also managed to tap into mass culture and create some of the industry’s most eye-catching, and sometimes controversial, advertising. Since the Seventies, Klein has often pushed the boundaries of advertising, starting with his sexy campaign featuring a 15-year old Brooke Shields wearing her tight Calvin Klein jeans; underwear-clad models; pierced and tattooed teenagers; children in underwear, and young-looking models in provocative poses.