In the money: PVH's Warnaco buy to drive international growth
PVH's US$2.9bn acquisition of Warnaco, announced earlier this week, will have the obvious benefit of uniting Calvin Klein's underwear, jeans and sportswear lines - but also brings new opportunities for international growth.
Speaking to analysts following the announcement of the deal, PVH chairman and CEO Emanuel Chirico emphasised the transaction's potential to leverage Warnaco's strong platform in Asia and Latin America.
Indeed, the two regions are likely to grow to account for 15% of revenue, more than doubling the current 7% share.
In 2012, Warnaco recorded revenues of US$525m in Asia and $200m in Latin America, with key markets including China, India, Brazil and Mexico.
Chirico believes there is potential for PVH to leverage its supply chain, operations, processes and systems expertise to drive further growth and margin improvement in these regions.
Beyond this, he said the company may also look to take the Tommy Hilfiger brand back from some of its licensees in these regions in the medium-term. But he added that PVH would not consider any such move for the next two years as it works to integrate Warnaco.
Meanwhile, in Europe and North America, PVH will leverage its expertise and infrastructure to restore growth and improve operating margins in the Calvin Klein jeans and underwear businesses it gains back from Warnaco.
PVH expects to save around $100m a year in synergies from the transaction, as well as one-time costs of $175m over three years. It also expects the deal to add $0.35 per share to earnings in the first full year.
These cost cuts will see jobs lost as synergies are created. Chirico said that while the company will look to retain all significant executives and their teams, there would be losses in back office functions like finance, logistics and operations.
He stressed the company would offer significant packages to those PVH and Warnaco staff impacted by the changes.
The deal will also give Warnaco the opportunity to accelerate its strategic growth initiatives. Warnaco admitted in August that its plans to revamp the company had been hindered by external factors including one-off charges and currency fluctuations.
Warnaco president and CEO Helen McCluskey said the deal will allow it to "unlock the substantial potential of the Warnaco business and brands than we would have been able to accomplish on our own".
She said the group's heritage brands, which include Speedo, Warners, Olga and Chaps will "certainly benefit from the resources and the leverage and the scale of what will now be a US$2m segment".
Chirico emphasised there are no plans at this stage to sell off Warnaco's heritage brands, saying they are all "strong operating margin businesses".
In terms of what uniting Calvin Klein Jeans, Underwear and the House of Calvin Klein will mean, McCluskey said it will better integrate the "powerful jeans and underwear businesses that we've built, with the creative and marketing strength of the House of Calvin, to much more efficient and effective brand message around the world."
The deal will also mean collaboration and co-ordination of product design, merchandising, supply chain and retail distribution. It will also mean consistency across sportswear, denim, accessories and marketing worldwide.
The acquisition is set to complete in early 2013.
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