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The present dispute between Jones and Polo stems from the weak sales of the Ralph licensed line. And sources said it didn’t help Jones’ case when it has continually said that the Lauren by Ralph Lauren line is a "mature business." Polo feels strongly otherwise and believes the line has plenty of room to grow.
As reported, Polo contends that it has the right to end its substantial Lauren license with Jones at the end of 2003, three years earlier than its official expiration date, because of the failure to meet minimums in the Ralph agreement. Jones says it has the right to keep the Lauren license through the end of 2006. The Lauren line generates about $548 million in sales. For 2002, the contracted minimum for the Ralph line was $100 million, but Jones’ revenues from the Ralph license were just $37 million. Although the Polo Jeans license isn’t part of the dispute, sources said Polo may be angry enough to take back that license as well. Polo Jeans generates between $400 million and $450 million in revenues for Jones.
Peter Boneparth, chief executive officer of Jones, told a Bear Stearns conference last month that the Jones-Lauren licensing arrangement could have three possible outcomes. "One is we will enter into a longer-term license with Polo Corp. and we have offered a substantially higher royalty to do so. The second is the ugly scenario where we will fight to maintain our rights on the contract. The third scenario is…we do not go to court, but we both work on a practical and orderly transition from a timing perspective."
By dangling the possibility of a Hilfiger acquisition, Boneparth may be looking for leverage in his negotiations with Polo.
"This is a bit like bombing Iraq from the north, something of a diversionary tactic," said one source in the investment community. "Boneparth isn’t looking all that good in his time at Jones’ helm — their Lauren business appears mature and their shoe business and a lot of their apparel businesses are tough. Now, between Lauren, Polo Jeans and Ralph, he could be at risk of losing $1 billion in volume. He’s got to do something to put Jones on the offensive again, and I wouldn’t be surprised to see him do a Calvin Klein women’s wear deal with PVH, an acquisition of Tommy or even both."