TOMMY, CALVIN TALKS PLODDING ON, BUT IS THERE A DARK HORSE?
Byline: Lisa Lockwood
NEW YORK — Contrary to speculation that they’ve hit an impasse, the talks between Calvin Klein Inc. and Tommy Hilfiger Corp. are still proceeding, according to insiders.
However, sources indicate a dark horse may be emerging for the Klein business. While the identity of an additional suitor couldn’t be confirmed, observers pointed to The Warnaco Group as a likely candidate.
Warnaco, which already has substantial Calvin Klein interests, had submitted an initial bid last December that was rejected. But sources speculated that Warnaco might be eyeing a second run at the Klein business, especially if a Tommy deal doesn’t materialize, or if it can outbid Hilfiger.
Asked whether Warnaco had renewed interest, Linda Wachner, chairman and chief executive officer of Warnaco, told WWD, “We don’t comment on market rumors.”
It’s no secret that Warnaco’s fortunes are very much tied to the Calvin Klein brand. The company generates the lion’s share of Calvin Klein’s royalties with its directly-owned Calvin Klein Underwear business and the plum CK Calvin Klein jeans license.
In fact, whoever does buy Calvin Klein — whether it be Hilfiger or anyone else — will have to deal with the strong-willed Wachner.
Declining to comment on any specific company, a Calvin Klein spokesman said, “The process is moving forward.”
A Hilfiger spokeswoman said the company doesn’t comment on market speculation.
Still, other suitors could be waiting in the wings, such as a European or Japanese partner looking for a foothold in the American market as part of their global expansion plan.
Klein’s expectation is to reach an agreement by the end of the first quarter.
Calvin Klein, who is arguably the most famous designer in the world, generates 90 percent of his revenues through a network of licensees. Currently, Klein’s licensed products account for $2.5 billion in wholesale volume, or $5 billion at retail. Its licensing income is in excess of $150 million, of which $60 million is paid by Warnaco Inc.
This year Warnaco expects to generate in excess of $1 billion in its CK Calvin Klein Jeans and Calvin Klein Underwear businesses. According to Wall Street estimates, the jeans business, including outlet stores, will account for $700 million in wholesale volume this year, while the underwear business will ring up another $350 million in revenues.
When Wachner rocked the Calvin Klein boat late last year and decided to sell Calvin Klein Underwear to J.C. Penney, it angered some of her other key accounts. Dillard’s subsequently dropped the line, as well as other CK businesses, and May Co. reportedly cut back on the CK Underwear line as well.
The Warnaco Group acquired the Calvin Klein Men’s Underwear business and the trademarks for men’s accessories worldwide from Calvin Klein’s Inc. in March 1994 in a deal worth $62.5 million ($38.5 million in cash and $24 million in Warnaco common stock) plus ongoing fees. As part of the deal, Warnaco took over the Calvin Klein women’s underwear business at the beginning of 1995, after a licensing pact for that category with Heckler Manufacturing & Investment Group had expired.
Warnaco acquired the CK Calvin Klein jeans license when it acquired Designer Holdings Inc. in October 1997 for a stock deal valued at $354 million. In those two years, the business has grown from $400 million to about $700 million anticipated this year.
With the acquisition of Designer Holdings, the Warnaco Group bought into a 40-year deal to make Calvin Klein jeans and jeans-related sportswear for women, juniors, men and children throughout the Americas. The current license runs through 2034, and offers Warnaco an option to extend the deal by another 10 years.
At the time of the DH acquisition, Klein executives were concerned that Wachner controlled too much of the Calvin Klein brand.
Besides Warnaco’s jeans business and its directly owned Calvin Klein Underwear business, Klein’s licensees include Unilever Ltd. for women’s and men’s fragrances; Marchon for CK and Calvin Klein eyewear; Fairbrooke for coats; GFT Corp. for men’s Calvin Klein and CK clothing and furnishings and Kayser-Roth for sheer hosiery.
Despite the ongoing talks, it’s still conceivable that Calvin Klein, vice chairman, and Barry Schwartz, chairman, will decide, after listening to the various deals and/or strategic options on the table, that they’re not getting enough for the company and are better off not selling.
Rumors have also circulated that if Schwartz and Klein sell the company, they may not want to take as active a role as they have had in the past. Sources say Schwartz definitely wants out, and Klein may want to reduce his role to “consultant.”
Klein and Schwartz, who each own 43 percent of Calvin Klein Inc., started the company in 1968 with a $10,000 investment.
Warnaco shares rose 7/8 to 11 13/16 Thursday as the Dow Jones Industrial Average soared 499 points. Despite Thursday’s gain, the stock is still trading close to its 52-week low of 9 1/8 as investors punished the firm for delivering disappointing third-quarter results. Warnaco said it was hurt by sales shortfalls caused by stores going out of business, unexpected costs tied to the opening a plant in Mexico, and high clearance markdowns at CK Calvin Klein juniors. Warnaco’s 52-week high is 30 5/8.
Hilfiger’s stock closed at 14 1/8, up 1, on Thursday.