NEW YORK — Tommy Hilfiger came close. And so did Warnaco Group, HdP and others. But Calvin Klein Inc.’s new owners are Calvin Klein and Barry Schwartz.
A seven-month search for a partner or buyer for one of the most famous names in fashion has ended with the original founders deciding to hang on to the business and expand it on their own terms, taking the brand on to the Internet and into new price zones.
And both insisted they are not disappointed in the least with the outcome.
“I’m really so pleased we went through this process,” Klein told WWD Tuesday. “In the end, we decided we have the resources and we can expand the business the way we feel it is appropriate by remaining a private company. We like being able to control our business ourselves, and we have a management team that’s stronger than it’s ever been. Being private just seems to be the most appealing thing to Barry and myself. In the end, it was just not exciting enough or appealing enough for us to do a deal.”
Klein said he will remain vice chairman and Schwartz will continue as chairman and chief executive officer. The partners said there are no immediate plans to revisit the issue of a sale or strategic partnership, and that going public remains an unattractive option to them.
“We would not consider a merger or a sale or any other kind of alliance now and certainly not in the near future,” Klein said. “It’s just not part of the scheme.”
Asked why no deal came together, Schwartz said it came down to strategic issues. “In the end, we couldn’t find a company who shared our vision. Contrary to what a lot of people were saying and a lot of what was written, price was not an issue. The agreed upon price was agreed upon.
“What it came down to is we wanted to align ourselves with people who appreciated and respected the brand.”
Klein declined to comment on widely published reports that he and Schwartz were seeking in excess of $1 billion for the company. He would only say offers were “in the ballpark.”
The partners also declined to identify or even quantify the number of parties who expressed interest in the company. Klein would only say that there were serious discussions with “at least” five companies.
Hilfiger was the latest company to closely scrutinize Klein’s business, 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. Among the other companies said to have taken a look at the business are LVMH, Gucci Group, Dickson Poon, Liz Claiborne and Jones Apparel Group.
Schwartz said new suitors emerged as recently as two weeks ago.
“We turned a lot of people away that we never even showed the book to,” he said. “It wasn’t a question of getting the biggest number. It was really a question of finding the right people.”
Klein’s tangled web of licensing agreements — with two of his biggest businesses, jeans and underwear, controlled by the Warnaco Group — was widely perceived as a key obstacle to a buyer or strategic partner. Sources cited it as the reason Tommy Hilfiger ultimately backed down from a deal, being unwilling to purchase a company for a premium price — in the neighborhood of $850 million — when so much volume is controlled by another company. Warnaco owns the Calvin Klein trademark for underwear outright and holds the plum license for jeans.
“It’s one of the best brands out there, but it’s got some baggage with it,” said one source familiar with the operation.
Last fall, when Warnaco Group announced that it would be selling Calvin Klein underwear to J.C. Penney, it sent a chill through some potential buyers, concerned that Warnaco Group chairman and chief executive Linda Wachner might soon take the jeans into more moderate stores. “It put the rest of the brand in a fragile position,” said one source. 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.
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.
Klein’s other 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.
Over the past decade, Klein has successfully reinvented the 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.
But Klein bristled at the suggestion that his licensees were a key stumbling block to a deal.
“That shows that people do not share our vision,” he said. “It’s only a stumbling block to people who truly don’t understand what Calvin Klein is. We’ve licensed with the best people we can find in each industry. Unilever has been an amazing partner. We create the product and the image and the advertising and they manufacture and distribute.”
Klein did acknowledge that “people had concerns” about the amount of Calvin Klein business Warnaco controls, which is approaching $1 billion at wholesale.
However, he insisted: “That has not been an issue with people who were seriously interested in the company. The amount of business Warnaco controls was a concern for some people, but not for others.”
Wachner, who was vocal about her desire to own Calvin Klein and was widely considered an obvious suitor, withdrew from the process in December after her first bid was rejected. She reemerged as a front-runner again in recent weeks after Tommy Hilfiger backed out, however sources had long indicated Klein and Schwartz would be disinclined to sell to Wachner.
Reached late Tuesday, Wachner said she was “not at all” disappointed that Klein decided to stay private. “We wish Calvin the best. We love Calvin,” she said.
Asked why Warnaco did not emerge victorious, Wachner replied: “We were interested in the entire intellectual property, and at the end of the day, he did not want to sell his entire intellectual property, his name.
“We’re thrilled that he’s keeping the company and we’re going to continue to build the business alongside his.”
Klein and Schwartz characterized the search process as worthwhile in that it forced them to examine all aspects of their business in minute detail and to hear lots of ideas about where the business could be taken.
“We really want to put this behind us,” Klein said. “We’ll be strategizing new business and how to grow and expand the existing businesses.”
Schwartz and Klein took pains to note that they made several key additions to their management team throughout the search process. In February, Klein appointed former Guess executive Jeffrey B. Cohen to the new post of senior vice president of global retail. And last November, he tapped Harlan Bratcher from Sony as his new senior vice president of marketing.
“I’ve never felt better in my life,” Klein said, “and there are so many new and exciting things happening in the world. I think we’re just beginning to see an enormous change in what fashion will become.”
Asked if he was referring to the Internet explosion, Klein said: “We will at some point in the near future be able to talk more specifically about what our plans are for e-commerce and Internet strategy.”
When Klein and Schwartz hired Lazard Freres last October to explore strategic opportunities, the partners had identified a range of growth categories for the brand, including accessories, home, beauty, men’s wear, activewear and new diffusion categories.
Klein said those opportunities, plus new ones identified in the search process, remain. He said Internet and e-commerce would be the immediate priority, but he added that “there are other price ranges, other levels of product to be explored.”
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.