Women’s Wear Daily
04.18.2014
financial
financial

Talking Tommy: Hilfiger Shares Fall as Wal-Mart Eyes Brand

Shares of Tommy Hilfiger Corp. and Wal-Mart both fell on the news that Wal-Mart Corp. was interested in possibly acquiring the brand.

financial/news
The analyst added there are risks for the Hilfiger brand, as well as for Wal-Mart.

"While Tommy as a brand has been cold lately in the U.S., there is a good chance that the brand can also reinvigorate Wal-Mart's apparel, and at the same time pull up the visibility of Wal-Mart's apparel content. However, if it fails to do so, could Tommy also then drag down Wal-Mart? The risk then, too, is that the Tommy brand languishes in the discount channel," he said.

Lizabeth Dunn, an analyst at Prudential Equity Group, believes in the possibility of a Wal-Mart/Hilfiger marriage because it fits with the discounter's recently discussed merchandising strategy. She wrote in a research note Monday that the strategy had an eye "more toward national brands to attract incremental customers and increase its average ticket."

Dunn noted the discounter, with $5.7 billion in cash and equivalents as of July 2005, could certainly afford the company, and could even buy out designer and founder Tommy Hilfiger's contract.

At least one source with familiarity of the thought processes at Wal-Mart said a preliminary purchase price was in the $2 billion range, excluding the cash to buy out the designer's contract.

The proposal that was given to some potential acquirers had included $250 million in cash as the buyout amount of the designer's contract. The terms of Tommy Hilfiger's contract entitles him to receive 1.5 percent of U.S. revenues in excess of $48 million. According to an apparel executive who saw the proposal last month and had contemplated a purchase of the company, Tommy Hilfiger received in the "$14 million range last year, and the cost of the buyout would be between $200 million and $300 million."

The apparel executive also believed that, because in his opinion much restructuring is needed for the U.S wholesale operation, a sale to Wal-Mart makes sense due to the retailer's ability to blow out product in different categories.

Some analysts also viewed a scenario where Wal-Mart would not have to pull the Hilfiger brand out of department store distribution.
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