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An Industry Shocker: Wal-Mart Said Eyeing A Tommy Hilfiger Bid

A new player has emerged in the stakes for Tommy Hilfiger Corp. in the form of the world's biggest retailer, Wal-Mart Stores Inc., sources said.

Tommy Hilfiger on the runway in New York

Tommy Hilfiger on the runway in New York.

Photo By Thomas Iannaccone

A Hilfiger look for spring 06

A Hilfiger look for spring '06.

Photo By George Chinsee

NEW YORK — Wal-Mart Stores Inc. has emerged as a new player in the race for Tommy Hilfiger Corp.

Financial and industry sources said last week that Wal-Mart, the world's largest retailer, is believed to have initiated the idea and soon will start its due diligence analysis on Hilfiger, possibly by week's end.

Spokeswomen for Wal-Mart and Tommy Hilfiger declined comment. Bankers representing Tommy Hilfiger could not be reached. But such a deal would dramatically transform the Hilfiger brand away from its department store roots.

J.P. Morgan Chase & Co., working with Goldman Sachs, has been quietly shopping Tommy Hilfiger Corp. to potential buyers and is said to be concentrating its efforts on just a few companies, banking and industry sources said. Those firms include two financial players, one of which is Apax Partners. Bankers at Apax could not be reached for comment.

Marvin Traub, a retail consultant and former Bloomingdale's chairman and chief executive officer, said a Wal-Mart/Tommy marriage "would be interesting."

Traub, of the firm that bears his name, said a deal would "blow up [Tommy's] whole licensing program, because you can't be at Wal-Mart and sell Tommy Hilfiger licensed product to department stores. However, nothing is impossible."

Financial sources have said the asking price for Hilfiger is at least $1.82 billion, but could go as high as $2.16 billion and that a deal might be inked before Thanksgiving.

Banking sources and apparel executives, who spoke on condition of anonymity, said last week the timetable is still valid. One executive said the preference is to get a deal done quickly while valuations hold up.

Several bankers tracking the sale process on behalf of their clients said there was no formal prospectus, or "book," on Hilfiger. A banker not connected to J.P. Morgan Chase said a book wouldn't be necessary since the apparel firm was being shopped to just a handful of buyers. The presentations include a focus on Hilfiger's retail and European operations, the bankers said.

Bankers and other financial sources also said Hilfiger has generated substantial interest among financial and strategic players.

Some of the firms that have been contacted include Jones Apparel Group Inc., Perry Ellis International Inc. and Liz Claiborne Inc. Other names mentioned include Kellwood Co., Li & Fung USA and Phillips-Van Heusen Corp., banking sources said. However, Claiborne, Jones, Li & Fung, Kellwood and Perry Ellis are said to no longer be in the running.

Tommy Hilfiger Corp. agreed in August to pay $18.1 million to settle an investigation of its commission policies by federal prosecutors in Manhattan. The U.S. Attorney's office agreed not to prosecute the company or its subsidiary.An apparel executive, whose firm sells in the department store channel and who has personal knowledge of the information bankers have presented on Tommy, said, "Selling Tommy at Wal-Mart and exiting the department store channel would be a tremendous boom for apparel firms. Between Tommy Hilfiger and George, Tommy would be the winning card."

George, a label launched in the U.K. and used domestically to target the upscale sensibility of shoppers, has taken longer than expected to catch on in the U.S., another apparel executive said. If Wal-Mart picks up Hilfiger, the retailer could extend the brand into other categories in its product offerings, such as home goods.

Acquiring Hilfiger would fit Wal-Mart's recent merchandise strategy. The retailer's ceo, H. Lee Scott, has said the company can offer varying price points, from entry level to more upscale products. Acquiring Hilfiger would turn up Wal-Mart's fashion quotient and better position the discounter apparel against chief rival Target Corp.

The change in Wal-Mart's merchandising focus is attributed to John Fleming, chief marketing officer, sources said. Fleming was promoted to the post in April, and before that was president and ceo of walmart.com. A standout on Fleming's résumé is a 19-year stint at Target, where he was senior vice president of fashion merchandising.

Wal-Mart chief financial officer Thomas Schoewe said at a Bank of America Investment Conference on Thursday that Fleming has been "building up a team hired to sell ... you're starting to see his impact already."

Some of the focus has been on apparel. The discounter hosted a fashion show in Times Square on Sept. 12, Schoewe noted.

Alan Siegel, a brand consultant and chairman of Siegel & Gale, said carrying designer brands is the "single most important move Target has made to add retailing excitement to [its] image."

As a result of its fashion initiatives, Target has upgraded its customer demographic. And Target's lower price points still appeal to its core customers, while also making it possible for shoppers to participate in the "designer game."

Siegel said while it's interesting for Kmart to have Martha Stewart, it's more interesting that Target has Cynthia Rowley, Rachel Ashwell for Shabby Chic and Michael Graves because "unlike Martha Stewart, these are true designers in their field. That would be important for Wal-Mart to bear in mind."