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Iconix Approaches Tommy But Hilfiger Plays It Cool

Iconix Brand Group knocked on J.P. Morgan Chase's door looking to make a bid for Tommy Hilfiger Corp., but got a chilly response.

NEW YORK — Iconix Brand Group knocked on J.P. Morgan Chase's door on Friday looking to make a bid for Tommy Hilfiger Corp., but got a chilly response.

According to Robert D'Loren of UCC Capital, Iconix's banker and investment adviser, he contacted the bank on Friday about the company's interest in making a bid but was told Hilfiger was "not for sale." The investment banking firm even denied a book was available.

WWD reported exclusively Wednesday night on its Web site that several vendors already have been shown some form of a prospectus — commonly referred to as a book, but it could even be as simple as a memorandum — containing information about earnings projections, price multiples and other confidential information on the company's operations.

One financial source told WWD the information was shown to a select group of potential buyers, and that the process may not turn into an open auction for another 30 days.

"When that happens, we're going to be a bidder," D'Loren predicted.

The banker said he had a meeting with Neil Cole, Iconix's chairman, president and chief executive officer, Friday morning about putting in a bid for Hilfiger.

"We have very serious interest in the company. We also have the capacity to do it. I spent the morning raising money. We have what we need to do a deal," D'Loren said.

Iconix, the company formerly known as Candies Inc. until midsummer, has changed its model from a manufacturer to a brand management firm. So far, the company isn't on the radar screen of equity analysts at the larger investment houses, but has seen interest from so-called small-cap investors, as well as hedge funds. The company also isn't viewed as a big player on the European front, nor even as a retail operator.

Still, D'Loren doesn't foresee these issues as stumbling blocks in a bid for Hilfiger, which has a substantial retail outlet operation in the U.S. and a successful and growing European business.

"None of that is a problem. That's not foreign to us, and it's nothing that we haven't dealt with before, just more zeros involved," D'Loren said.

The banker was referring to a deal that he's done with designer Max Azria, securitizing the BCBG trademarks, a business that included a retail operation. In addition, D'Loren has worked on a number of deals involving high-end design houses, including the purchase by Iconix of Badgley Mischka from Escada AG last November.

The asking price on Hilfiger is at least $1.82 billion, but could go as high as $2.16 billion, according to financial sources. Designer Tommy Hilfiger is expected to get $250 million in cash as a buyout of his contract if a deal goes through.

Li & Fung USA is one of the companies mentioned as a possible lead buyer for Hilfiger. The company is a sourcing firm that is now focusing more on global brand management. The parent company is Hong Kong-based Li & Fung Ltd.

Jones Apparel Group also is being discussed as a potential buyer. In 2003, Jones held exploratory talks with Hilfiger, but no deal was struck. However, Jones is believed to have had contact again with Hilfiger recently, according to industry and financial sources. A third company talked about is Liz Claiborne.

Late last week, Merrill Lynch analyst Virginia Genereux sent out a research note on Tommy Hilfiger Corp. She wrote, "Industry contacts confirm our view that the Tommy brand still has tremendous value, with a robust international business, a material stream of licensing revenues, a now-manageably sized U.S. wholesale business and zero exposure to the moderate channel, which the recent success of Chaps has highlighted as an opportunity."

Genereux said recent deals for "publicly traded targets in our sector suggest a willingness on the part of buyers to pay premium multiples for companies like Tommy, with underdeveloped brands and/or some margin expansion opportunity."

Last month, Iconix completed an $80 million acquisition of the Joe Boxer brand from Windsong/Allegiance Apparel Group. The purchase price for Joe Boxer was $40 million in cash, 4,350,000 shares of restricted stock and an assumption of $11 million in debt, the company said. The brand, through an agreement with Kmart and international licensees, generates $20 million in annual royalty income. Financing for the $80 million deal was through an increase of Iconix's current asset-backed securitization note that is secured by the firm's intellectual property. UCC was the underwriter on the deal.

Iconix on Aug. 4 posted second-quarter results that reflect its new focus as a brand management company. For the three months ended June 30, net income was $2.5 million, or 8 cents a diluted share, versus $518,000, or 2 cents, in the same year-ago quarter. Revenues from licensing and commissions jumped 62.4 percent to $4.3 million from $2.6 million. In the year-ago period, the company reported sales of $26 million, a figure that reflects the firm's operations before its transition to a new business model.

The New York-based Iconix is set to hold its annual meeting on Thursday at its offices, 215 West 40th Street.

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