Apax backs $700M Calvin Klein acquisition

The private equity house has partnered with trade buyer Phillips-Van Heusen to acquire Calvin Klein Inc. in a $700m leveraged buyout.

(PrivateEquityCentral.com) Private equity firm Apax Partners has partnered with Phillips-Van Heusen Corp. to acquire Calvin Klein, Inc. in a transaction valued at approximately $700m.

The value of the transaction includes $400m in cash, approximately $30m in Phillips-Van Heusen stock as well as warrants and an ongoing financial incentive for Calvin Klein based on future sales of the Calvin Klein brand. The transaction is expected to close within 60 days, subject to customary conditions.

Apax Partners will provide financing for the transaction in the form of a $250m equity investment in Phillips-Van Heusen convertible preferred stock, as well as a $125m two-year secured note. The preferred stock carries an eight-percent dividend payable in kind or in cash at the company’s option and a $14 conversion price into Phillips-Van Heusen common stock.

Phillips-Van Heusen Corp. is the largest shirt company in the world. Its brands include Van Heusen, IZOD, G.H. Bass, as well as licensing agreements with Geoffrey Beene, ck Calvin Klein, Arrow, DKNY and Kenneth Cole.

Under the terms of the agreement, Calvin Klein Inc.’s existing design and marketing organisation will continue as a separate and distinct operating unit. Calvin Klein will retain a significant financial interest in the combined entity’s success and be involved in key strategic issues, including growth opportunities, overall design direction, brand positioning and marketing strategy. Calvin Klein Inc.’s president Tom Murry will continue as president and chief operating officer of the organisation.

Calvin Klein Inc. said that that it expects the acquisition to make a major contribution to its growth in earnings per share. The acquisition is anticipated to be somewhat dilutive in 2003 and to make a positive contribution to annual earnings by 2004. During 2003, due to normal integration and transition costs, operating earnings per share are expected to be in a range of $1 to $1.05. Earnings per share for fiscal 2004 and beyond are expected to grow at an annual rate of 15 per cent to 20 per cent.

Advisors to the transaction include the Blackstone Group, Lehman Brothers, J.P. Morgan Chase, and Katten Muchin Zavis Rosenman for Phillips-Van Heusen and Violy, Byorum & Partners Holding Company LLC for Calvin Klein.