The designer has no clothes

27 January 2006 By Alex Fak

The basic problem is that the lower the takeover price, the more some Tommy executives stand to gain from the deal. These perverse incentives add to concerns among some shareholders that Tommy is selling too cheaply.

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Sowood Capital Management, the thirdlargest shareholder in Tommy Hilfiger Corp, said it would vote against the proposed sale of the fashion company to Apax Partners.

The deal, announced in December, values Tommy Hilfiger at about $1.6bn, or $16.80 per share. Sowood disputes the fairness opinion penned by JP Morgan, and says the company is worth between $19.50 and $27 per share.

Sowood, in a letter, accused the three top managers involved in negotiating the deal of securing personal remuneration packages that make their total payoff inversely proportional to the price Apax is paying for Tommy's shares, and therefore contradictory to shareholders' interests.

These executives include Thomas Hilfiger, the honorary chairman; Fred Gehring, who is set to become the chief executive officer of the surviving company; and Ludo Onnink, set to become the chief financial or chief operating officer of the company.

Thomas Hilfiger's current compensation amounts to a base salary of $900,000 plus 1.5% of US sales over $48m.

Apax refused to comment. No other shareholder has publicly come out in support of Sowood.

Independent directors Mario Baeza (the lead director) and Jerri DeVard did not respond to telephone requests for comment.

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