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

"I don't think Apax Partners did enough with the brand, but Van Heusen is more familiar with menswear," said Donna Reamy, associate professor at the department of fashion design and merchandising at Virginia Commonwealth University in Richmond.

Hilfiger CEO Fred Gehring said the PVH deal makes sense despite Apax's earlier plans to take Hilfiger public.

"When you have a strategic sale, the norm often is you also lose a little bit of your identity in the process. PVH on the other hand in the transaction with Calvin Klein seven years ago has demonstrated how it can be done differently," Gehring told Reuters in an interview.

Gehring will remain as chief executive, join the PVH board and take on international operations for PVH. PVH expects the deal to boost earnings by 20 cents to 25 cents a share, excluding items, in the current fiscal year.

It also said the deal would add 75 cents a share to $1 a share in the next fiscal year, ending Jan. 29, 2012. Private investment firm Blue Harbour Group, which owns about 1.5 million Phillips-Van Heusen shares, said it was "very supportive" of the deal.

There is "potential for the stock to move further up from the move we've seen today," said Michael James, a senior trader at Wedbush Morgan in Los Angeles.

Phillips-Van Heusen will pay $2.6 billion in cash and $380 million in common stock for Tommy Hilfiger. Phillips-Van Heusen expects to use $3.05 billion in debt, $385 million in cash, $200 million in preferred stock and $200 million from a common stock offering to finance the deal and refinance other debt.

The company is paying "a very fair price for such a powerful brand," PVH Chief Executive Emanuel Chirico told Reuters in an interview. It expects $300 million in annual cash flow, and plans to pay off $200 million in debt in 2011.

The deal would not alter PVH's relationships with its other brands and licenses, he said. The company sees annual cost savings of $40 million from the deal and expects to close it in the second quarter. Peter J. Solomon Co is the lead financial adviser to PVH.

Barclays Capital, Deutsche Bank, Bank of America Merrill Lynch, and RBC Capital Markets also acted as financial advisers and will arrange financing for the deal. Credit Suisse acted as lead financial adviser to the Tommy Hilfiger Group and as sole adviser to Apax Partners.

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