Phillips-Van Heusen (PVH) announced Monday it plans to acquire Tommy Hilfiger B.V. in a deal valued at approximately $3 billion.
The deal, which is expected to close in Phillips-Van Heusen' fiscal second quarter, will stitch together two big apparel brands and give Phillips a greater presence in Europe and Asia.
"We are very pleased to be joining forces with PVH, one of the premier apparel companies in the world. The scale of the combined company in the U.S. will deliver obvious benefits for both companies, while Tommy Hilfiger's significant international presence and infrastructure offers an opportunity for PVH to introduce a number of its brands into the international market," said Fred Gehring, chief executive officer of Tommy Hilfiger, in a statement.
Under the deal, Phillips-Van Heusen will pay Apax Partners L.P., which owns Tommy Hilfiger, approximately $2.65 billion in cash and $380 million in stock. Phillips-Van Heusen will also assume $137.7 million in liabilities as part of the deal.
Shares of Phillips-Van Heusen were up 10.75% to $52.87 a share in late morning trading.
Hilfiger to Stay On
The merger will create a combined company with approximately $4.8 billion in revenue and bring Tommy Hilfiger's collection of menswear, womenswear and childrenswear into the Phillips-Van Heusen house, which includes the Van Heusen, Calvin Klein and IZOD brands.
Designer Tommy Hilfiger will retain his title as Principal Designer and Visionary for the brand that bears his name after the merger is completed. Gehring will remain as Tommy's CEO and expand his responsibilities to include CEO of Phillips-Van Heusen's international operations.
Tommy Hilfiger fit like a glove in terms of Phillips-Van Heusen's acquisition criteria, according to Emanuel Chirico, Phillips-Van Heusen chief executive, who discussed the deal during a conference call with analysts and press Monday morning.
Chirico cited Tommy's strong brand recognition and management, as well as the company's profitability and the immediate positive effect on Phillips-Van Heusen's earnings.
He noted his company expects the merger to add 20 to 25 cents a share to its fiscal 2010 earnings, excluding one-time costs and charges. And in fiscal 2011, the company anticipates earnings accretion of 75 cents to $1 a share.
Phillips-Van Heusen plans to reap the benefits of the merger through growth and not cost cutting.
"This transaction is not about cost saving synergies," Chirico said. "This is about growth and having an international platform to grow the Tommy business and PVH legacy businesses."
After the merger, Phillips-Van Heusen expects to generate 40% of its revenues from overseas sales. The combined companies anticipate 45% of revenues will come from retail stores, 45% from their wholesale business and 10% from licensing.
Returning to Growth
With the Tommy deal, Phillips-Van Heusen will inherit an exclusive relationship with Macy's Inc. Noted Chirico: "We will work hard to maintain and grow this relationship."
That's not the only thing Chirico will need to focus on. The road to successful mergers can be few and far between.
"We have a proven track record," Chirico said, pointing to Phillips-Van Heusen's acquisition of Calvin Klein in 2003. Since that acquisition, Calvin Klein's revenues have largely grown annually at a rate of 12% to 14% a year and, despite the current economic malaise, the brand's fiscal 2009 performance is up about 6%.
For Tommy Hilfiger, the acquisition comes at a time the company was on the upward swing in transforming its business.
The company was founded in 1985 with a brand that appealed to youths seeking a preppy look, but by 2001 its business had peaked as the brand became overexposed, said Gehring during the conference call. The company was taken private in 2006, as management reorganized its focus to overseas markets and reduced the number of its wholesale licenses.
Tommy, as a result, has seen its business grow over the past three years, Gehring said. The company expects to close its fiscal year with revenues of approximately $2.25 billion and earnings before interest and taxes of roughly $280 million.
"International was our growth driver," he added.
What's your investing game plan?View Course »