PVH and Warnaco to Merge into $8 Billion Apparel Giant

Andrew Klips  |

After two days of being shutdown in the wake of Hurricane Sandy pummeling the East Coast of the United States and up into Canada, Wall Street’s doors opened again on Wednesday. Earnings are in focus with a raft of companies providing generally upbeat financials and PVH Corp. (PVH) and Warnaco Group, Inc. (WRC) jointly announcing the first big acquisition news since the re-opening.

The two New York-based fashion companies said Wednesday morning that PVH will acquire fellow apparel maker Warnaco in a deal valued at $2.9 billion. PVH, whose portfolio contains Calvin Klein, Izod, Arrow and Tommy Hilfiger brands, offered to pay $51.75 in cash and 0.18 of a PVH share for each share of WRC; equating to a value of $68.43 for each share of WRC held by stakeholders. This represents a 34 percent premium to Warnaco shares’ closing price on Friday, the last day the markets were open before the super storm.

The transaction will give PVH established operations in every major consumer market worldwide and create an $8 billion apparel powerhouse. PVH anticipates an accretion of 35 cents per share in the first full year after closing of the merger.

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The deal would merge the Calvin Klein brand into one house to “ensure a single brand vision globally.” PVH bought the Calvin Klein brand in 2003, but Warnaco holds the licensing rights to Calvin Klein brand jeans and underwear divisions.

“This is a unique opportunity to reunite the ‘House of Calvin Klein’ and reinforces our strategy to drive the global growth of Calvin Klein,” said PVH Chairman and CEO Emanuel Chirico in a statement.

In addition to its Calvin Klein assets, Warnaco will bring owned and licensed brands such as Speedo, Chaps, Warner’s and Olga to PVH.

The merger is expected to close early in 2013, subject to customary approvals. Both boards of directors have unanimously approved the deal.

Meanwhile, PVH currently expects its non-GAAP earnings per share for the third quarter and full year 2012 to be at least at the top end of its guidance range previously announced on October 2, 2012. Looking ahead, PVH is expecting one-time costs related to the acquisition of $175 million.

Warnaco will be reporting its third quarter earnings on Monday, November 5th. The company anticipates about $612 in revenue and reaffirmation of 2012 guidance, not including any expenses related to the merger.

Shares of PVH are soaring ahead to all-time highs in today’s trading; printing as high as $112.47 and still trading up by more than 20 percent on the day at $110.83 per share one hour into the trading session. Shares of WRC have equaled the feat of attaining all-time high levels; trading at $70.88 for a rise of nearly 40 percent early in the day.

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