PVH’s merger with Warnaco consolidated Calvin Klein



Transaction overview

On February 13, 2013, PVH Corp. (PVH) completed the acquisition of Warnaco Group. The transaction was executed through a combination of cash and exchange of shares. According to the agreement, Warnaco stockholders received $51.75 per share in cash and 0.1822 shares of PVH for each share of Warnaco. The aggregate value of the consideration was $68.43 per share. This represents a 34% premium over the closing price on October 26—the date when the deal was originally signed.

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The total consideration was $3.1 billion. It was comprised of ~$2.2 billion paid in cash, the issuance of 8 million shares of common stock amounting to $926 million, the issuance of stock awards worth $40 million—which replaced Warnaco’s outstanding stock awards to its employees, and the elimination of $9 million in pre-acquisition liability to Warnaco.

PVH funded the cash portion and acquisition costs. It paid its fees on senior secured facilities. It repaid all of Warnaco’s outstanding long-term debt with proceeds from $700 million of senior notes and $3.2 billion of term loans under its new senior secured credit facility.

Merger benefits

The transaction was largely positive for PVH. The combined entity was significantly larger with more than $8 billion of revenue. It resulted in the unification of the Calvin Klein brand. Warnaco was the largest Calvin Klein licensee. With the business combination, PVH acquired complete control of the Calvin Klein jeanswear and underwear businesses across the globe.

The deal also allowed PVH to pursue growth strategies in Asia and Latin America. Warnaco established a base in these countries. The synergies expected from the deal were cost reductions of $100 million through lower corporate and back office overhead for a period of three years. PVH incurred $175 million in one-time integration costs.

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As predicted by management at the time of the merger, the combined entities delivered revenue of $8.2 billion and non-GAAP (generally accepted accounting principles) EBIT (earnings before interest and taxes) of close to $1 billion in 2013.

In the earnings announcement in 3Q14, management mentioned that the restructuring associated with Warnaco was complete. The business will likely yield strong positive cash flows going forward. This will support its deleveraging plans.

PVH and other apparel companies—like Coach Inc. (COH), Ralph Lauren (RL), Michael Kors (KORS), and VF Corp. (VFC)—are part of the Consumer Discretionary SPDR ETF (XLY). XLY holds 0.42% of its portfolio in PVH. It has 0.47% in Coach and Ralph Lauren. It has 0.66% in Michael Kors. It has 1.13% in VF Corp.


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