Byline: Lisa Lockwood

NEW YORK — Talks between Tommy Hilfiger Corp. and Calvin Klein have collapsed, sources said Saturday.
After several weeks of intense negotiations, Hilfiger has decided not to buy Calvin Klein Inc., claiming the price was too high, WWD has learned.
Asked to comment Sunday on the report that Hilfiger’s negotiators had given up on reaching a deal, a spokesman for Calvin Klein replied, “The company is still very pleased with the direction of the process.”
He would not comment on any specific company. It is believed that top Klein officials may not have been aware over the weekend that Hilfiger’s people had decided to give up on the deal.
Hilfiger officials were unavailable for comment Sunday.
A Klein-Hilfiger combination would have created a multibillion-dollar mega-designer business, unleashing a public relations and marketing bonanza and opening up enormous sourcing and product development possibilities. Now, both parties are left to seek other partners.
Hilfiger is the latest company to scrutinize Klein’s company, and came close to inking a deal. Earlier this year, Holding di Partecipazioni Industriali, the Italian conglomerate, neared a deal, but talks broke down after HdP decided to focus on its publishing operations.
Sources said there are other companies that could potentially bid, such as Warnaco Group, which, through licenses and ownership of certain categories, has the lion’s share of the Calvin Klein business. Linda Wachner, chairman of Warnaco, had initially bid on the company, but didn’t make the second round. Sources said she may be ready to make another move. She couldn’t be reached for comment.
Calvin Klein had a self-imposed deadline of the end of the first quarter to reach an agreement.
According to sources, Hilfiger’s co-chairmen, Silas K. F. Chou and Lawrence Stroll, had been very serious about buying Calvin Klein and felt that at the right price, it would have been an extremely attractive acquisition. Klein is reportedly seeking in excess of $1 billion for the company.
The Hilfiger honchos had viewed the acquisition as an opportunity for renewed growth and a means of improving its standing on Wall Street. Hilfiger’s stock has been trading at or near its 52-week low of 11 11/16 and closed Friday at 13, up 1/8. Its 52-week high is 41 1/8.
Hilfiger is expected to make the news that it’s backing out of the Calvin Klein deal official at its April 3 board meeting.
Hilfiger will reportedly seek other growth strategies, such as expansion of both its retail operation and Internet business. The company’s Web site went up last December without e-commerce because Hilfiger officials didn’t want to upset their department store customers. However, sources said, they’re now seriously exploring an expansion into e-commerce because the Hilfiger consumer base is technologically savvy.
As noted, Hilfiger plans to close its two money-losing flagship stores in Beverly Hills and London after it finds new locations, and wants to operate smaller stores that could become “profit centers” as part of a new specialty store strategy. The company signed a deal earlier this month for a new Hilfiger store in SoHo here. The site, currently a parking lot at 372 West Broadway on the corner of Broome Street, is next to Harry Cipriani’s downtown restaurant.
Hilfiger, whose sales are approaching $2 billion, recently hired Morgan Stanley Dean Witter to explore acquisitions. The company has over 20 different divisions but is at a crossroads, with sales of its men’s clothing slowing down and its women’s business having some difficult times.
The company, which over the past 12 years had been growing at breakneck speed, hit its first roadblock in the past quarter when it reported disappointing earnings. Hilfiger announced it was undergoing cost-cutting measures, including temporarily shelving its better-priced women’s career line. It also named downtown designer Daryl Kerrigan as creative consultant to bring some edge to its women’s sportswear and accessories lines.
Last October, Klein retained Lazard Freres & Co. to explore an outright sale, a joint venture or a merger for the company. Lazard Freres reportedly came to the table fully loaded, emphasizing the company’s standing as one of the most powerful consumer brands in the world, a healthy balance sheet with no debt, groundbreaking advertising expertise and a broad product portfolio from Calvin Klein Collection to CK Sportswear, jeans, fragrances, men’s wear, eyewear and underwear.
Many U.S. and foreign companies have reportedly looked at the Calvin Klein books. But Klein officials have also made it known that if they didn’t get their price, they didn’t have to sell.
Calvin Klein Inc. generates 90 percent of its revenues through licensing and over $2.5 billion in wholesale, or $5 billion in retail volume annually.
Over the past decade, Klein has successfully reinvented his company from primarily a manufacturer, to a licensing empire. The strategy has paid off handsomely — licensing income has more than tripled from $45 million in 1994 to over $150 million this year. Its royalty stream is believed to be the highest in the industry.
Warnaco, which owns Calvin Klein Underwear and licenses CK Calvin Klein Jeans, generates $1 billion in sales and provides an estimated $60 million in royalty payments to Calvin Klein Inc.
Its other major licensee is Unilever Ltd., which manufactures and markets such successful Klein fragrances as Contradiction, Eternity, Obsession, Escape and CK One, and launched a color cosmetics line this spring.
Other licensees include GFT Corp. for men’s clothing and furnishings, Marchon for eyewear, Gabar for swimwear, Kayser-Roth for sheer hosiery and Fairbrooke for coats.
Boyhood friends from the Bronx, Klein and Barry Schwartz, chairman of Calvin Klein Inc., started their company in 1968 as a coat business, with an initial investment of $10,000. Each holds a 43 percent stake in the company; the rest of the equity is held in family trusts.
While Klein’s competitors such as Ralph Lauren, Hilfiger, Donna Karan, Guess and Gucci have all taken the IPO plunge, Klein has resisted, not wanting to become a slave to the quarterly pressures of public life.
Klein’s strategy 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, but over the past couple of years, he has been on an ambitious path to expand his entire business internationally. He has over 40 stores around the world for Collection, CK, shoes, handbags, jeans and underwear.
While some observers consider Klein in a mature stage of development, the company believes there are still many opportunities for further global expansion, particularly through such categories as accessories; home products; activewear, including golf, tennis and ski merchandise; cosmetics, notably the new color cosmetics launched this spring, and a diffusion line priced between Collection and CK.

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