US apparel company PVH Corp (NYSE:PVH), owner of the Calvin Klein and Tommy Hilfiger brands, has agreed to acquire peer The Warnaco Group Inc (NYSE:WRC) in a transaction that values the latter at some USD2.9bn (EUR2.2bn), the pair announced today.
Under the terms of the deal, Warnaco’s stockholders will get USD51.75 in cash plus 0.1822 of a PVH common share for each of their own common units. The total offered price per share amounts to USD68.43 based on PVH’s last closing, which in turn represents a premium of 34% over Warnaco’s last closing.
Following completion of the transaction, which is seen to occur in early 2013, the former Warnaco shareholders will own a 10% stake in PVH. The combined business will have more than USD8bn in pro forma revenue and is expected to be one of the biggest and most profitable global branded lifestyle apparel firms around the world, the parties said. The enlarged group’s portfolio of brands will include Calvin Klein and Tommy Hilfiger along with Van Heusen, IZOD, ARROW, Bass, Olga and Warner’s.
According to PVH’s chairman and CEO Emanuel Chirico, this tie-up is “a unique opportunity to reunite the House of Calvin Klein” and will help the group enhance its strategy to drive the global growth of the particular brand. He added that Warnaco’s own Calvin Klein-related operations will be transferred to PVH’s Calvin Klein platform to ensure a single brand vision globally. He went on to say that the buyer intends to align Warnaco’s established activities in Asia and Latin America with its own businesses in North America and Europe to fuel growth strategies for the major brands.
As a result of the combination, PVH estimates it will fully realise about USD100m of annual run rate synergies over three years. It also expects the deal to add USD0.35 apiece to its earnings in the first full year, excluding one-time integration costs and transaction expenses. The projection includes the effect of the potential loss of a license. Once the expense synergies are fully realised, the company anticipates the tie-up to build on its earnings by USD1.00 apiece.
The transaction is pending approval under applicable antitrust and competition laws. In addition, PVH will need to receive the nods of shareholders controlling a majority of Warnaco’s outstanding common stock. The company has secured commitments for a USD4.33bn funding from several investment banks. This credit line will be used to refinance debt, pay for the cash portion and other deal-related expenses as well as to provide liquidity.
Peter J Solomon Company, Barclays Plc (LON:BARC), BofA Merrill Lynch, Citigroup Inc (NYSE:C) and Wachtell, Lipton, Rosen & Katz are consulting PVH, while JPMorgan Chase & Co (NYSE:JPM) and Skadden, Arps, Slate, Meagher & Flom LLP are advising the target.