Tommy Hilfiger Corp. to Buy Two Licensees

Tommy Hilfiger Corp. said it will buy two licensees owned by its officers or their affiliates for $1.15 billion in cash and stock, bringing women’s clothing and Canadian operations under the same roof with its popular men’s wear.

The New York-based company will buy Pepe Jeans USA Inc. and Tommy Hilfiger Canada Inc. for $756 million in cash and 9 million shares. The company didn’t disclose whether the transaction included assumption of debt--other than to say it was insignificant--or break down prices for Pepe, which sells women’s clothing and jeans in the U.S., and Tommy Hilfiger Canada, which is licensed to use the brand name in that country.

The transaction expands the clothing maker’s product line with relatively low risk, because the fast-growing licensees have already established themselves, an analyst said. It also gives the officers and their affiliates who own the licensees a 19% stake in the company, up from nearly nothing now.

“This is a very natural consequence of success,” said Kurt Barnard of Barnard’s Retail Trend Report. “Taking the risk paid off, and now they want it back.”

Tommy Hilfiger rose 38 cents to $43.56 a share on the New York Stock Exchange on Friday.

Licensees are a common way to spread a brand name without too much upfront investment, Barnard said. Such ventures are often owned by insiders, he said.

Closely held Pepe is owned by Tommy Hilfiger himself; Tommy Hilfiger Chief Executive Joel Horowitz; and investment affiliates of Chairman Silas Chou and Director Lawrence Stroll. The Stroll family owns Tommy Hilfiger Canada, Tommy Hilfiger spokeswoman Ruth Pachman said.

Those officers and director owned a total 20,600 Tommy Hilfiger shares as of the September proxy.

Because of the ownership of the two licensees, the transaction was reviewed by a special committee of independent directors.

The two licensees have nearly doubled sales this year. Revenue for the two companies is expected rise to about $430 million in the fiscal year ending March 31, from $229 million last year. Tommy Hilfiger’s 1997 revenue was $662 million.

The transaction will add to earnings per share in the first year and will then result in charges that “will not be very significant relative to the size of the transaction,” Pachman said. She declined to elaborate.