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Phillips-Van Heusen to buy Tommy Hilfiger for $3 billion

Analysts say Phillips-Van Heusen purchase of Tommy Hilfiger makes strategic sense.

By Dhanya Skariachan and Nivedita BhattacharjeeReuters / March 15, 2010

In this file photo from Feb. 18, 2010, Tommy Hilfiger greets the crowd after his fall 2010 collection is modeled during Fashion Week in New York. Phillips-Van Heusen today said that it will buy privately held Tommy Hilfiger in a cash-and-stock deal valued at about $3 billion, creating one of the world's biggest clothing companies.

Seth Wenig/AP

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Phillips-Van Heusen (PVH.N), owner of the Calvin Klein label, agreed to buy fashion brand Tommy Hilfiger from London-based Apax Partners [APAX.UL] in a $3 billion cash-and-stock deal to boost its presence in Europe and Asia.

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The deal would make Phillips-Van Heusen one of the largest suppliers of menswear to U.S. department stores, and will keep Hilfiger founder Tommy Hilfiger in his role as principal designer for the clothing line.

It also will add yet another high-profile name to PVH's lineup, home to Izod and Calvin Klein. PVH also distributes menswear under labels such as Kenneth Cole New York, Michael Kors, Donald Trump and DKNY.

News of the deal boosted Phillips-Van Heusen's shares about 10 percent and marked an end to London-based private equity firm Apax's plans for an initial public offering for the iconic brand which it had bought in 2006 for $1.6 billion.

Private equity firms have been increasingly able to exit investments as the economy and markets have stabilized. Taking companies public has been more problematic. Apax made 4.5 times its investment on the deal and will hold about 7 percent of the stock in PVH after the deal, a source familiar with the situation said.

"The deal certainly makes sense and that can be seen from PVH's share price. A lot of people out there see that although it is quite a costly acquisition, they are still getting it at quite a low price," IBISWorld analyst Toon van Beeck said.

At an estimated valuation of 8 times trailing earnings before interest, taxes, depreciation and amortization, "the price seems reasonable and the deal makes strategic sense to us," Morningstar said in a research note for investors.

Tommy Hilfiger has spent the last few years trying to undo the damage from shifting its focus to a more mainstream group of buyers. It suffered years of sales declines after its logo-heavy designs helped make it a staple of urban streetwear, but alienated more affluent customers.

Now, the company is expanding more quickly abroad than in the United States.

"It's an opportunity to really revamp Tommy Hilfiger, which was such an iconic brand in the 90s and has somewhat died," van Beeck said.

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