WARNACO -KLEIN TALKS SAID MOVING WITHOUT DEADLINE

Byline: Lisa Lockwood

NEW YORK — The Warnaco Group has moved into the front-runner position to acquire Calvin Klein Inc., but talks could linger for a while as sources told WWD there is no timetable to make a deal.
As reported in these columns Thursday, Tommy Hilfiger Corp. decided to pass on a deal to acquire Klein because it couldn’t come to terms on price. Plus, Hilfiger executives concluded that buying the business without owning the Calvin Klein jeans license wouldn’t give enough value to shareholders (see related story, page one).
Klein and Barry Schwartz, partners in Calvin Klein Inc., could still decide to pull the company off the market if they’re not satisfied with the deal that Warnaco puts on the table, and if they don’t feel Warnaco will give them the financial flexibility and enough access to equity markets to expand the business.
The question remains, would a deal with Warnaco give Klein the tools it needs to succeed over the long term?
Despite the debt such an acquisition would bring, sources say the $2.5 billion Calvin Klein business could be a strategic growth vehicle for Warnaco, which has had two straight years of earnings disappointments and has seen a sharp decline in its stock price.
Warnaco’s fortunes are closely tied to the Calvin Klein brand and its various Calvin Klein products are expected to generate more than $1 billion in sales this year, according to Wall Street estimates. Warnaco pays roughly $60 million in royalty fees to Calvin Klein Inc., which earns more than $150 million in royalty income a year.
A spokesman for Calvin Klein Inc. said Friday the process was moving forward satisfactorily, and Warnaco officials couldn’t be reached for comment.

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