A Natural Fit for PVH

 | Oct 31, 2012 | 7:27 AM EDT
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Just when you thought that PVH (PVH) had rung the last dollar bill out of its brilliant Tommy Hilfiger purchase a few years back, lightning strikes again this morning when PVH announced that it is buying Warnaco (WRC) for $2.9 billion, or $51.75 in cash and 0.1822 in stock a share.

The acquisition of Warnaco, which has the use of Calvin Klein jeans and underwear licenses, will cause analysts to raise numbers rather dramatically instantly and even bigger in the out years if you simply extrapolate how much PVH was able to do for Hilfiger.

Right now the house of Calvin Klein is divided between PVH and Warnaco. This transaction allows PVH to consolidate the brands, which would be good in its own right. But what is more important is that Warnaco hasn't done a particularly good job merchandising the jeans or the underwear even as these are gigantic brands with huge profit margins. That's why even if you didn't think that PVH was going to do anything other than take in the money that Warnaco was going to get it would STILL be a good deal. But I have to believe the master merchants at PVH will do far better with Calvin jeans and underwear than the undermanaged Warnaco.

We take a day off and we see not one, the Disney–Lucas combination, but two, the PVH-Warnaco deal, and we remember that good companies are always going to use their cash and their stock to augment their earnings.

Both deals are terrific. But in the case of this PVH it's such a natural fit that it is amazing it wasn't done much earlier.

Bravo to Manny Chirico for picking up Warnaco. And may I just add that when I suggested he do this deal back on Sept. 18, I thought he needed to pay $3 billion to get it. He shaved $100 million off the price tag.

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