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Chasing Tommy: Apax and PVH Said in Lead, but Price an Issue

Apax Partners, in partnership with Phillips-Van Heusen, is in the lead in the bid for Tommy Hilfiger Corp., but the process is said to be "fluid."

Tommy Hilfiger

Tommy Hilfiger

Photo By WWD Staff

NEW YORK — Apax Partners LLC and Phillips-Van Heusen are said to be the lead contenders in the bidding for Tommy Hilfiger Corp. But a price tag is proving difficult to nail down.

As a result, the bidding, which was due to close on Friday, could continue even beyond next week, according to several sources in the banking community. Sun Capital and Perry Capital are other names that have popped up as contenders in the bidding for Hilfiger. Both are financial players with large war chests.

The current bid ranges between $1.68 billion and $1.78 billion, which is below the $2 billion the Tommy Hilfiger board is said to want, according to financial sources. Officials at Tommy Hilfiger declined comment Monday.

The nature of the bidding process is driven by several factors, including the potential to hook up sourcing and licensing deals as well as financing an acquisition. One financial source said, "The whole thing is a moving target, with multiple parts. Just because Apax is in the lead now doesn't mean it will remain in the lead at the end of the day when bids are finally submitted."

Another financial source said, "The process is very fluid. It all changes each minute."

Still, financial sources said the bidding is likely to be locked in a specific range. Banking sources said the players are looking at a price tag of $15.50 to $16 per share, which excludes $177 million in cash that Tommy Hilfiger Corp. has on its books. Sources also said there's a possibility that potential financial buyers are acting like "Scrooge," unwilling to stretch to a price tag of $17 per share.

Shares of Tommy Hilfiger closed Monday at $17.75.

One banker involved in the bidding said Tommy Hilfiger Corp. will not accept less than its market capitalization value. Monday's close at $17.75 per share pegs the market cap at $1.64 billion. At a $16-a-share bid, the purchase price would be $1.5 billion.

When including the $177 million in cash, the total purchase price would be $1.68 billion. Since a buyer would keep the cash, and use it to finance the purchase, the effective price tag is $1.5 billion. That $1.5 billion is far below the $2.1 billion the company and some bankers thought it might get when the story of the sale first broke on WWD's Web site on Aug. 17.

Another financial source expects the $1.68 billion price tag would be an opening bid, and that a small bidding war would follow, ending when someone agrees to a price of at least $1.78 billion. Such a price tag presumes a per share price of $18.90, including the cash component. Since the buyer would be keeping the cash to finance the purchase, its real per share cost would be around $17.

Sun Capital has surfaced on and off in the past year as a possible acquirer of Boscov's, a privately held regional department store with most of its stores in Pennsylvania. A source close to the bidding process speculated that Sun Capital might elect to pull out of the chase for Hilfiger should the price tag surpass the $16.50-per-share range, an amount that includes the cash on the balance sheet.

Perry Capital bought Capital Factors in April. Richard Perry, Perry's co-founder, joined the Sears Holdings board in September. One source said Perry's presence on the Sears board might present a potential conflict of interest for Tommy Hilfiger since there is the risk a new owner might place a limit on where Hilfiger products would be sold.

Regarding the role of strategic players like Phillips-Van Heusen working with Apax, the post-deal picture focuses on who would oversee the operational aspects of Hilfiger, sources said. PVH would run the Hilfiger operation and, given its experience with outlet stores, could handle the Hilfiger units as well. But if it were to operate Hilfiger's outlet stores, too, it is likely to garner a sizeable equity stake in the designer company should Apax be successful in its bid.

Apax Partners is the private equity firm that helped PVH acquire Calvin Klein and also has invested in Spyder Active Sports. Apax's investment in PVH was $250 million. Based in New York, Apax Partners' funds have raised about $20 billion around the world. Typically, it makes investments of between $50 million and $300 million.

Regarding brand marketer and sourcing specialist Li & Fung as a possible acquirer, that scenario is seen as unlikely. A source close to Li & Fung said, "An acquisition of the Tommy Hilfiger brand would not be consistent with Li & Fung's corporate strategy. However, the company is always interested in evaluating sourcing opportunities that might arise from such situations."

Li & Fung's strategy is on building brands and adding value services based on the company's expertise in certain areas, such as sourcing. The company is not expected to be in an acquisition mode for at least another five years, according to a source close to the company. And while published reports have Li & Fung involved in a bid for Hilfiger with a financial player, the company's role would be limited to sourcing, such as working with a licensing firm while financial players have ownership of the company.

Regarding designer Tommy Hilfiger's employment contract, sources said it would be bought out for $150 million. It's unclear if Hilfiger would have a role in the acquired company or just collect a percentage on sales of branded goods, as in his current employment contract. Hilfiger's current agreement pays him between $14 million and $18 million a year.

Tommy Hilfiger Corp. filed its amended annual report Nov. 18 for the fiscal year ended March 31. Net income dropped 34.5 percent to $85.7 million, or 93 cents a share, from $130.8 million, or $1.43 a share, a year ago. Total revenue fell to $1.78 billion from $1.87 billion in 2004. U.S. wholesale revenue dropped to $679 million from $959 million.