PVH Corp will buy rival Warnaco Group Inc for about $2.8 billion in a cash-and-stock deal that will give the company control of the Calvin Klein clothing brand.
PVH bought Calvin Klein in 2003 and makes formal and sportswear under that brand, while Warnaco has held the licensing agreements for Calvin Klein jeans and underwear since 1997.
Shares of both companies jumped in premarket trading after they announced the deal on Wednesday.
"Having direct global control of the two largest apparel categories for Calvin Klein - jeans and underwear - will allow us to unlock additional growth potential of this powerful designer brand," PVH Chief Executive Officer Emanuel Chirico said in a statement on Wednesday.
The parties expect the deal to close in early 2013, after which former Warnaco stockholders will own about 10 percent of PVH stock.
The combined business will have $8 billion in annual revenue. PVH said it expected the acquisition to add 35 cents a share to earnings, excluding special items, in the first year and $1 in the third year, when it forecasts annual savings of about $100 million.
The company said it now expected full-year earnings per share to come in at the high end of its October 2 outlook of $6.32 to $6.37 per share excluding special items.
Based on PVH's closing price of $91.50 on Friday, the last day the stock traded, the deal values Warnaco at $68.43 a share for a premium of 34 percent. Trading was closed on Monday and Tuesday due to the Hurricane Sandy.
PVH shares rose to 18.1 percent to $109.21 in premarket trading on Wednesday, while Warnaco jumped 39.2 percent to $70.81.
The deal comes about two years after PVH bought the Tommy Hilfiger brand for about $3 billion to get a bigger foothold in markets like Europe and Asia.
"In taking a look at PVH's Tommy and other acquisitions, they do make valuation a very important component, so without really digging into the numbers, I would think they did not overpay," Morningstar analyst Peter Wahlstrom said.
New York-based Warnaco, which also sells products under brands such as Speedo, Chap, Warner's and Olga, operated 1,759 Calvin Klein retail stores worldwide as of December 31.
PVH is paying $51.75 in cash and 0.1822 of a share of common stock for each Warnaco share.
The deal value is based on Warnaco's 40.87 million shares outstanding as of August 1.
Warnaco's Calvin Klein businesses will be run by Tom Murry, chief executive officer of Calvin Klein.
The company, which competes with Ralph Lauren Corp , Perry Ellis International Inc and Michael Kors Holdings Ltd , said it had commitments for $4.33 billion in financing from Barclays , BofA Merrill Lynch and Citigroup Global Markets Inc .
(Additional reporting by Siddharth Cavale and Sakthi Prasad in Bangalore; Editing by Erica Billingham,; Sriraj Kalluvila and Lisa Von Ahn)