NEW YORK — Tommy Hilfiger Corp. is up for sale, and it may come with a hefty price tag.

According to a source specializing in mergers and acquisitions, Hilfiger is being quietly shopped around to select, potential buyers. A prospectus, known as a “book,” is available, but it’s not widely circulated, and J.P. Morgan Chase is said to be the investment adviser, according to buy-side analysts.

This story first appeared in the August 18, 2005 issue of WWD. Subscribe Today.

Sources said the asking price is at least $1.82 billion, but could go as high as $2.16 billion. The deal could net Tommy Hilfiger himself up to $250 million.

Financial sources said a deal could be inked before Thanksgiving, meaning the sale process will proceed fairly quickly over a 60- to 90-day period.

Financial and market sources who have familiarity with the book’s contents said Hilfiger’s earnings before interest, taxes, depreciation and amortization is projected to be between $260 million and $270 million for the fiscal year ending in March 2007, which is an indication the company is being marketed based on future earnings. The multiple is expected to be seven to eight times EBITDA, bringing the asking price in the range of $1.82 billion to $2.16 billion.

Financial sources familiar with the book’s contents said that $250 million from the company’s cash could be used to buy out designer Hilfiger’s contract. A spokeswoman for Hilfiger did not return calls for comment by press time.

The company, which posted first-quarter earnings results last week, ended the quarter with over $500 million in cash, according to a research note by analyst Robert Drbul at Lehman Brothers. For the first quarter ended June 30, net income was $319 million versus $329 million in the same year-ago quarter.

Financial sources said Hilfiger has generated substantial interest among both financial and strategic players. Names whispered in the industry regarding strategic buyers include Jones Apparel Group, VF Corp. and Liz Claiborne, the typical players that routinely get named when a consumer brand is put on the auction block.

One name that has come up repeatedly is Li & Fung USA, which is changing its image from a sourcing powerhouse to a global branding model. A spokeswoman for Li & Fung said that “it is the company’s policy not to comment on rumors.”

A portfolio manager, who requested anonymity, said Wednesday that Hilfiger would be an attractive candidate to both strategic and financial buyers, particularly the “financial buyers who may even be willing to pay as much as 10 times EBITDA.” A multiple of seven to eight times EBITDA would give shareholders around $21 a share. There are 92 million shares outstanding. The portfolio manager said if the multiple went higher, it could easily translate to some $23 a share for stockholders.

A sell-side analyst in New York, also requesting anonymity because of company policy, observed, “Tommy Hilfiger is still a great brand. The U.S. domestic wholesale business is troubled, but everything else in its [operations] is doing well. It only has about $350 million in long-term debt, and great businesses in Europe, licensing and retail. The company’s retail outlet business, mostly in the U.S., does about $550 million annually and is profitable.”

The sell-side analyst said many people don’t recognize the potential for the Karl Lagerfeld business, which Tommy Hilfiger Corp. acquired last December. “Karl is a huge opportunity in Europe and Hilfiger has the infrastructure to expand Lagerfeld in Europe,” he said.

The analyst also believes there’s a good chance Hilfiger might have a financial player as its new parent. “All that a financial buyer wants is to pay down the debt and then go public. Hilfiger is ideal for a financial buyer because it has [substantial] cash on hand and huge cash flow,” he said.

Market sources and financial firms said Hilfiger is a perfect fit for Li & Fung because of sourcing synergies and the firm’s desire to expand into branded apparel, particularly in the denim arena.

Li & Fung in May showed its intent to acquire more consumer brands by creating in its U.S. operation two management teams to focus on the apparel and home categories. Its parent, Hong Kong-based Li & Fung Ltd., which is projecting $10 billion in income by 2007 compared with $6.1 billion in 2004, bought knitwear maker Ralsey Group in October 2004.

“We’ve always believed that the Tommy Hilfiger line is a great American iconic brand with tremendous potential,” said Gilbert Harrison, chairman of investment banking firm Financo Inc.

Until last week, Hilfiger’s subsidiary Tommy Hilfiger U.S.A. Inc. was being investigated by the U.S. Attorney’s office for its commission policies. The company last Wednesday said it settled the U.S. tax probe for $18.1 million, and that the U.S. Attorney’s office agreed not to prosecute Hilfiger or its subsidiary.

Although there are still some state tax issues pending, now that the criminal probe is resolved, the path seems clear for the company to be sold.

There were rumblings in May 2003 the company was in play. Sources said there were talks with potential buyers, such as Jones Apparel Group. Those talks supposedly cooled because Hilfiger was considered too expensive to be sold. Another hurdle was Tommy Hilfiger’s contract, which entitles Hilfiger to receive 1.5 percent of U.S. revenues in excess of $48 million.

In June of 2003, Hilfiger hired J.P. Morgan Chase to assist it in “exploring acquisitions of additional brands.” Hilfiger had been on the acquisition hunt for several years, having looked at Calvin Klein, Marc Ecko Enterprises and Rocawear.

In December 2004, Hilfiger acquired the Karl Lagerfeld trademarks for an undisclosed amount of cash. The deal allows Hilfiger to globally expand Lagerfeld Gallery, the women’s luxury ready-to-wear collection that encompasses the Karl Lagerfeld trademark, and the Lagerfeld brand women’s, men’s and accessories lines, which are licensed. In addition, Hilfiger has the option of adding apparel and accessories categories, as well as open retail stores worldwide. The transaction also includes the two Lagerfeld Gallery stores in Paris and Monaco.

The company signed a five-year contract with Lagerfeld for design and creative direction for his brands.

Rumblings of a sale resurfaced in June when Merrill Lynch analyst Virginia Genereux issued a report titled “Tommy Hilfiger, Your Most Likely Takeout Candidate.” In her report, she noted that while “financial buyers typically avoid mature branded apparel companies, [Hilfiger] has the critical [leveraged buyout] ingredients.” She also noted that Hilfiger’s troubled U.S. wholesale business is now only at 28 percent of sales, or less than $500 million. In contrast, “Europe remains robust and highly profitable, and will comprise about 35 percent of sales this year.”

Last week, following a Hilfiger conference call Thursday on first-quarter earnings, Lizabeth Dunn of Prudential Equity Group issued a report in which she concluded, “After our conversation with the company, we do think an acquisition is more likely than we previously assumed.”

Dunn added, “When we asked the company about doing an acquisition, the company responded that it is better to be a seller than a buyer right now.”

— With contributions from Marc Karimzadeh, Julee Greenberg, Meredith Derby and Amy S. Choi

Tommy Hilfiger Corp. By the Numbers
Fiscal Year
Net Sales
Net Earnings/(Loss)
$1.78 billion
$92 million*
$1.88 billion
$132.2 million
$1.89 billion
($513.6 million)
$1.88 billion
$134.5 million
$1.88 billion
$131 million
$1.98 billion
$172.4 million
Source: Company reports *Pretax earnings
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