UPDATE 5-PVH unites Calvin Klein lines in $2.8 bln deal

* Offer of $68.43 a share represents a 34 percent premium

* Expects deal to add $1 a share to earnings in third year

* PVH says it has committed financing of $4.33 billion

* PVH shares up as much as 23 percent

* Warnaco shares up as much as 40 percent

Oct 31 (Reuters) - Clothing maker PVH Corp will unite Calvin Klein underwear, jeans and sportswear lines under one roof in a $2.8 billion deal to buy rival Warnaco Group Inc that will boost profits immediately.

PVH bought Calvin Klein in 2003 and makes formal and sportswear under that brand. Warnaco has held the licensing agreements for Calvin Klein jeans and underwear since 1997 and operates around 1,760 Calvin Klein retail stores worldwide.

Since around 2004, there have been discussions between the two companies about a deal, PVH Chief Executive Officer Emanuel Chirico told Reuters in an interview.

PVH shares were trading up 20 percent at $109.81 Wednesday morning on the New York Stock Exchange after rising by as much as 23 percent.

``What investors are excited about is that the deal is accretive for PVH right away, and that management did not over pay to bring the CK licenses into the house,'' Morningstar analyst Peter Wahlstrom told Reuters.

Chirico said the Calvin Klein deal gave the company confidence in running its international businesses. It follows about two years after PVH bought the Tommy Hilfiger brand for around $3 billion to get a bigger foothold in markets like Europe and Asia.

``Moreover, we just paid down $1 billion in Tommy related debt and that made it a good time (for the Warnaco deal),'' Chirico said.

The parties expect the deal to close in early 2013, after which former Warnaco stockholders will own about 10 percent of PVH stock.

Ken Berliner, president of Peter J. Solomon company, lead financial adviser to PVH for the deal, said talks got serious in June. Discussions were always focused on the whole entity, not buying just the Calvin business, he said.

PVH doesn't have any immediate plans to divest parts of the Warnaco business, he said.


Morningstar's Wahlstrom noted PVH would have access to Warnaco ``heritage'' brands like Speedo, Chap, Warner's and Olga, which are complementary to PVH's current portfolio.

``The heritage segment ... will be slow growing, but solid cash flow generators for PVH,'' he said.

Analysts at Piper Jaffray said the strong distribution platform that Tommy Hilfiger has in Europe will be a positive for CK jeans.

The combined business will have $8 billion in annual revenue. PVH 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 Oct. 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.

On Wednesday, shares of New York-based Warnaco were up 39 percent to $70.71 on the New York Stock Exchange.

``You are getting a strategic partner, and you are getting a brand hold, and you are acquiring some heritage brands, so it's a win win win,'' said Marshal Cohen, NPD's chief industry analyst.

Cohen said the deal gives PVH a better chance to balance out domestic and international sales, taking advantage of Warnaco's market in Asia and Latin America.

On a call with analysts, Chirico said the company would use the deal to directly develop its Tommy Hilfiger brand in established Warnaco markets.

Companies often have to depend on third-party manufacturers, marketers and licensing agents to sell their brands in international markets, making it a costly and time taking process. Direct control allows them more flexibility and saves them money.

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 Aug. 1.

Warnaco's Calvin Klein businesses will be run by Tom Murry, chief executive officer of Calvin Klein.

PVH, 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.