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Hurdle for Jones: Polo Seeks New Terms for Lauren, Ralph

Polo Ralph Lauren Corp. and Jones Apparel Group are in dispute over the terms of their licensing agreement for the Ralph and Lauren lines.

UBS analyst Jeffrey Edelman wrote in a research note: "In our view, one has to question the motives of Polo Ralph Lauren as to whether or not they felt the original royalty agreement was too much in favor of Jones Apparel and thus now trying to use this opportunity as a bargaining tool. While we know Polo is interested in acquiring its licensees, we doubt whether or not it has the infrastructure or capability to run a business as large as the Lauren license."

He noted that Jones’ management has been actively looking to "reinvest its cash flow into other brands with greater growth potential."

Boneparth said during the call to analysts that the company’s desire is to "do a longer-term deal with the Polo Corp." He also disclosed that the company "offered a substantially higher royalty than what we’re currently paying. We think we are extremely good operators. We’ve proved that. We have put on the [table to Polo] a substantially richer deal than what is in place."

According to sources familiar with the negotiations, the upped royalty payment Boneparth referred to is higher than the sum of the current combined percentages for Ralph and Lauren. Whatever the number, it’s apparently an increase, albeit not one that has led to a resolution.

Black said because of "Ralph’s name, the company deserves to get a premium from their licensees."

But just how much? The average licensing royalty is 5 to 6 percent. There was speculation in the financial industry that Jones offered 10 to 12 percent.

Executives at Jones did not return calls for comment, while officials at Polo declined comment on negotiations.
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