Phillips-Van Heusen Makes the Fashion Deal of the Century (So Far): Buying Tommy Hilfiger

Last Updated Mar 17, 2010 1:43 PM EDT

Guy in a Van Heusen shirtWho knew that Phillips-Van Heusen (PVH) had $3 billion at the ready to snap up Tommy Hilfiger? Well, it did. In a handy play that's been in the works since late 2009, the conglomerate -â€" best known for men's dress shirts -- which owns such brands as Calvin Klein and Izod and has license agreements with Kenneth Cole, DKNY and Timberland among others, just got that much bigger.

Taking the privately-held Tommy Hilfiger in a cash-and-stock deal valued at about $3 billion makes PVH one of the world's biggest clothing companies -â€" to the tune of about 4.6 billion in global revenues. Given PVH's successful track record with Calvin Klein and its other brands, it can only mean further growth for Hilfiger. But PVH has plenty to gain too.

PVH is in a particularly strong position right now. Van Heusen shirts continue to be perennially solid performers for the company, which touts them as top sellers in U.S. department stores. However it's what's inside PVH's Calvin's that proved to be the secret to success in 2009. Demand for Calvin Klein jeans, fragrance, underwear and women's sportswear continued unabated despite the rough economic retail climate. Consequently, PVH posted total revenue increases of 9 percent in the fourth quarter with an increase in royalty revenue of approximately 20 percent for Calvin Klein.

Hilfiger ad campaign 2008CEO Emanuel Chirico said it's "a unique opportunity to bring together two premier companies, each with iconic brands," but it goes much further than dressing Tommy up in a Van Heusen shirt, Calvin jeans and Bass shoes. Hilfiger's got what PVH wants: though it's a quintessentially American brand (three cheers for evergreen appeal of of that red, white, and navy blue color palette), more than half of the company's business is based in Europe, has strong Asian distribution, and rings up about $125 million in sales in South America.

PVH also has its eye on the guy who revived Tommy's relevance. Under Apax Partners' ownership over the past four years, Hilfiger's CEO Fred Gehring grew sales 30 percent. To get there, Gehring spearheaded sweeping changes such as cutting back distribution through lower-tier warehouse channels, entering into an exclusive distribution agreement with Macy's (M), and opening hundreds of new stores. Gehring told WWD that he's now eager to try the same with PVH's other lower-priced brands such as Izod and Arrow.

In return, Hilfiger gets relief from its liabilities load -- $137.6 million -- and Tommy himself can continue to provide creative direction. He'll also have a front row seat to watch the brand he founded 25 years ago expand to include more home products, accessories, shoes and that oh-so-lucrative business of fragrance.

Images courtesy PVH and Tommy Hilfiger