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A portfolio manager, who requested anonymity, said Wednesday that Hilfiger would be an attractive candidate to both strategic and financial buyers, particularly the "financial buyers who may even be willing to pay as much as 10 times EBITDA." A multiple of seven to eight times EBITDA would give shareholders around $21 a share. There are 92 million shares outstanding. The portfolio manager said if the multiple went higher, it could easily translate to some $23 a share for stockholders.
A sell-side analyst in New York, also requesting anonymity because of company policy, observed, "Tommy Hilfiger is still a great brand. The U.S. domestic wholesale business is troubled, but everything else in its [operations] is doing well. It only has about $350 million in long-term debt, and great businesses in Europe, licensing and retail. The company's retail outlet business, mostly in the U.S., does about $550 million annually and is profitable."
The sell-side analyst said many people don't recognize the potential for the Karl Lagerfeld business, which Tommy Hilfiger Corp. acquired last December. "Karl is a huge opportunity in Europe and Hilfiger has the infrastructure to expand Lagerfeld in Europe," he said.
The analyst also believes there's a good chance Hilfiger might have a financial player as its new parent. "All that a financial buyer wants is to pay down the debt and then go public. Hilfiger is ideal for a financial buyer because it has [substantial] cash on hand and huge cash flow," he said.
Market sources and financial firms said Hilfiger is a perfect fit for Li & Fung because of sourcing synergies and the firm's desire to expand into branded apparel, particularly in the denim arena.
Li & Fung in May showed its intent to acquire more consumer brands by creating in its U.S. operation two management teams to focus on the apparel and home categories. Its parent, Hong Kong-based Li & Fung Ltd., which is projecting $10 billion in income by 2007 compared with $6.1 billion in 2004, bought knitwear maker Ralsey Group in October 2004.
"We've always believed that the Tommy Hilfiger line is a great American iconic brand with tremendous potential," said Gilbert Harrison, chairman of investment banking firm Financo Inc.