PVH And Gazal Expand Australian Joint Venture - Quick Facts

(RTTNews) - PVH Corp. (PVH) and Gazal Corporation Limited (GZL.AX) announced that, through wholly owned subsidiaries, they reached an agreement with their Australian joint venture to add businesses to the joint venture, significantly expanding its scope.

The transaction will add the Tommy Hilfiger, Van Heusen and Nancy Ganz businesses in Australia and New Zealand to the joint venture, as well as certain of Gazal's other shirting, tailored and shapewear businesses. The transaction is expected to close in early February 2015.

PVH and Gazal's 50/50 joint venture, PVH Brands Australia Pty Limited, commenced operations in February 2014, with its entry into a license and distribution agreement with Calvin Klein, Inc., a wholly owned subsidiary of PVH, for Calvin KleinJeans and Calvin Klein Underwear in Australia, New Zealand and the rest of Oceania.

As per the agreement announced today, the JV will enter into a license and distribution agreement with Tommy Hilfiger Europe B.V., a wholly owned subsidiary of PVH, for Tommy Hilfiger in Australia and New Zealand. The JV will also acquire certain assets of the existing wholesale and retail Tommy Hilfiger business in Australia, including 12 stand-alone retail stores. The license and distribution agreement has a 12-year term.

The JV will acquire Gazal's shirting, tailored and men's accessories business, which is conducted under PVH's Van Heusen and Calvin Klein brands, as well as Gazal's owned and licensed Bracks, Pierre Cardin and Paramount brands. Gazal currently distributes the Van Heusen brand, the Australasian businesswear leader, under license from PVH. The current license agreement will be transferred to the JV and extended to December 31, 2033.

The JV will buy Gazal's shapewear business, which consists of the Australian and New Zealand rights to Nancy Ganz, the Australasian market leader in this category, as well as the right to distribute the Spanx brand in Australia and New Zealand under license from Spanx Inc., and Gazal's own HoldmeTight brand.

The JV will also enter into a perpetual license with PVH for Nancy Ganz for all territories outside of Australia and New Zealand.

Under the transaction, each party will make a further equity subscription in the JV of A$45.5 million which in the case of Gazal, it will satisfy by transferring to the JV its shirting, tailored and shapewear businesses at a value of A$33.6 million and making a cash subscription of A$11.9 million. In any event, PVH and Gazal will continue to have a 50/50 interest in the JV following completion of the transaction.

This transaction will increase Gazal's investment in the JV from A$6.4 million to A$51.9 million before transaction costs. Gazal expects to recognize a pre-tax profit on the sale of these businesses and an increase in net assets of between A$20.8 million and A$21.8 million.

As part of the transactions, Gazal will receive ongoing services fees from the enlarged JV for the provision of administration services, partnering (management) services and office and warehouse space.

Gazal expects that from fiscal 2016 the enlarged business of the JV will result in a net contribution to Gazal's reported earnings in excess of the current contribution of the shirting, tailored and shapewear businesses.