--PVH agrees to pay $2.9 billion to acquire smaller peer Warnaco
in a cash-and-stock deal
--Based on PVH's last closing price, per-share value is a 34%
premium over Warnaco's last closing price
--Shareholders at both firms cheered the news, sending Warnaco
and PVH sharply higher in Wednesday trading
Apparel maker PVH Corp. (PVH) agreed to pay $2.9 billion to
acquire smaller peer Warnaco Group Inc. (WRC) in a cash-and-stock
deal that will unite well-known brands such as Calvin Klein, Tommy
Hilfiger and Speedo under one combined firm.
Based on PVH's last closing price, the per-share value of the
deal is $68.43, a 34% premium over Warnaco's last closing price.
Shareholders at both firms cheered the news, as Warnaco jumped 38%
to $70.07 in recent trading while PVH rose 17% to $106.70. Both
stocks hit all-time highs on Wednesday.
In recent years, PVH hasn't been shy about launching large
acquisitions to bolster the company's rank of brands. New
York-based PVH, formerly known as Phillips-Van Heusen Corp., paid
roughly $3 billion in 2010 to acquire Tommy Hilfiger and spent over
$400 million to buy Calvin Klein in 2003. Those two brands
represent over 75% of PVH's profits and more than 80% of 2011's
$5.9 billion in revenue.
Warnaco shareholders will receive $51.75 in cash and 0.1822 of a
share of PVH common stock for each Warnaco share they own. The
merger, which has been approved by the boards of directors at both
companies, is expected to close in early 2013. Shareholders of
Warnaco, which owns and licenses brands such as Chaps, Warner's,
Olga and Calvin Klein, will own a roughly 10% stake in PVH when the
deal closes.
Cowen & Co. analyst John Kernan in a research note touted
the deal, saying Warnaco's infrastructure could help PVH expand the
Tommy Hilfiger business into Asia and Latin America. The firm also
touted PVH's ability to utilize its supply chain and other
operations to significantly bolster sales and margins for both
Calvin Klein and Tommy Hilfiger.
"We believe the biggest risks to the acquisition are increased
leverage and Warnaco's European exposure," Mr. Kernan said.
PVH expects to generate $100 million of annual run rate
synergies, which will be realized over a three-year period, and
incur one-time costs of $175 million.
PVH expects Warnaco, also based in New York, will add 35 cents
per share to earnings in the first full year, excluding one-time
integration costs and transaction expenses but including the
potential loss of a license.
Mr. Kernan said he believed PVH was being conservative with its
accretion targets, similar to the Tommy Hilfiger acquisition, and
that additional synergies could be generated. As a result, Cowen
said PVH's stock price could have even more upside.
Barclays PLC (BARC.LN, BCS), Bank of America Corp. (BAC) and
Citigroup Inc. (C) have agreed to provide about $4.33 billion to
finance the Warnaco transaction, with the funds to be used to
refinance debt, fund the cash portion of the deal, pay for
transaction-related expenses and provide extra liquidity for
PVH.
Looking ahead, PVH projected fiscal third-quarter and full-year
adjusted earnings would be "at least at the top end" of its targets
announced in early October. Warnaco, which plans to release
third-quarter results on Nov. 5, said it expects sales of about
$612 million and earnings from continuing operations in line with
Wall Street's expectations.
Analysts polled by Thomson Reuters expected Warnaco to post a
profit of $1.15 per share on revenue of $648 million.
-Write to John Kell at john.kell@dowjones.com
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