Apax will buy Tommy Hilfiger

NEW YORK -- Clothing designer Tommy Hilfiger Corp. agreed yesterday to a $1.6 billion buyout by Apax Partners & Co. after sales tumbled and the brand lost favor with teenagers.

Apax, part owner of the Calvin Klein label and manager of a $5.1 billion buyout fund, will pay $16.80 per share. That's 5 percent more than Tommy Hilfiger's closing price yesterday. Founder Tommy Hilfiger, 54, who has a 4.3 percent stake in the company, will stay on as principal designer. The company will buy back $342 million in debt in the transaction.

Tommy Hilfiger put itself up for auction after losing orders from US department stores, its largest customer, and as teens defected to apparel made by Sean John and Abercrombie & Fitch Co. Mergers among department stores including Federated Department Stores Inc. and May Department Stores Co. also reduced orders.

''Tommy was such a saturated brand" in the United States, said Sean Reidy, who helps manage $2 billion at Purchase, N.Y.-based Olstein & Associates, including Tommy Hilfiger stock. ''It probably peaked in the US in terms of brand appeal."

Shares of Tommy Hilfiger, based in Hong Kong and run from New York, were unchanged at $16 in New York Stock Exchange composite trading. The shares had risen 42 percent this year through yesterday.

''Investors were disappointed and thought it was going to get a higher price," said Brian Davies, an analyst at Boston-based Ironwood Capital Management, which has about $500 million in assets and is a former Tommy Hilfiger shareholder. He said some had expected the company to be sold for more than $18 a share.

The Hilfiger price was inexpensive, according to several commonly used methods of comparing merger prices. Apax is paying 1.15 times book, or balance sheet, value for Hilfiger. That's lower than the 2.67 average and 1.61 lowest book value among the eight acquisitions of apparel companies greater than $1 billion from Jan. 1, 2001 through yesterday.

The price for Hilfiger also is 1.25 times its market value plus debt, or enterprise value. That's below the 1.35 average enterprise value and close to the 1.22 low value in the comparison survey, according to Bloomberg data.

Chief executive David Dyer will leave, and Fred Gehring will take over that role, Apax and Tommy Hilfiger said in a statement yesterday. Gehring is the chief executive of Tommy Hilfiger Europe.

''The transaction is about getting bigger and bigger," said Dyer in a letter to Tommy Hilfiger employees disclosed in a regulatory filing yesterday. ''It will move our company to the next stage of its evolution as a global lifestyle brand."

Dyer also said he doesn't think selling merchandise to discounters is on the agenda of Apax as it positions Tommy Hilfiger as a higher priced brand. The Wall Street Journal reported earlier this month that Wal-Mart Stores Inc. was seeking a licensing deal with the new owner of the company.