Warnaco Offers $420 Million for Authentic Fitness

Intimate apparel giant Warnaco Group Inc., seeking to repurchase the company it spun off in 1990, said Sunday that it would pay $420 million in cash for Commerce-based sportswear company Authentic Fitness Corp.

Warnaco, whose chief executive also heads Authentic Fitness, offered Authentic $20.50 a share in cash--a 17% premium to Authentic’s stock price. The company would also assume about $105 million of Authentic’s debt.

Authentic, which makes swimwear, accessories and other fitness apparel under licenses for the Speedo, Anne Cole and Catalina brands, said in a statement that it would evaluate the offer.

In 1990, Warnaco spun off Authentic Fitness to investors, who included Warnaco Chief Executive Linda Wachner. Six years later, Warnaco tried to buy it back in a proposed stock swap valued at $500 million. The proposed merger was called off a month later when it became clear that Authentic would post a loss in its fiscal fourth quarter of 1996.

As of October 1998, Wachner was the second-largest shareholder in Authentic, according to SEC filings.

Warnaco is a marketer of underwear to U.S. department stores. Its brands under license include Calvin Klein men’s and women’s underwear, Olga and Warner’s bras and lingerie and Chaps men’s underwear by Ralph Lauren. The company had 1998 sales of $1.95 billion.

William Finkelstein, a Warnaco board member who also sits on Authentic’s board, told Reuters the deal represents a brand-building opportunity for both firms.

“It’s an aggregate of brands,” he said about the proposed transaction. “This is an opportunity to take Authentic Fitness brands and expand the license worldwide.”

He added that the deal would allow Warnaco to market its Chaps line with Authentic’s Polo Ralph Lauren line.

Shares of New York-based Warnaco closed Friday at $17.44 on the New York Stock Exchange, just above a 52-week low of $17.06 and far from its of $30.63. Authentic’s stock closed at $17.56, off a high of $18.81, also on the NYSE.

Finkelstein wouldn’t estimate how much the deal would add to Warnaco’s earnings and declined to say whether Warnaco would launch a tender offer if Authentic’s board rejects the proposal.

“We believe that our proposal delivers exceptional value to Authentic Fitness’ shareholders,” Warnaco said in its letter to the board, adding that “the public marketplace does not provide great valuation to mid-cap companies like Authentic Fitness.”

Authentic posted fourth-quarter earnings of $13.9 million on revenue of $148.9 million.