UPDATE 2-Iconix buys Rocawear brand; raises 2007 outlook

(Adds analyst's comment, background, share movement)

BANGALORE, March 6 (Reuters) - Iconix Brand Group Inc. (ICON.O), owner of fashion brands including Joe Boxer and Candie's, said it agreed to buy the Rocawear brand for $204 million in cash, to boost its holdings of fashionable attire and accessory brands.

Iconix, whose shares had dropped as much as 7 percent earlier, also reported a higher fourth-quarter profit and raised its 2007 earnings outlook.

The licensing and brand management company, in a statement, said it expects Rocawear to generate about $43 million in royalty revenue in the first 12 months under its fold.

"The deal is expected to generate an EBIT (earnings before interest and taxes) margin of over 80 percent, which is as profitable as it gets," Todd Slater, an analyst at Lazard Capital Markets, said by phone.

Slater has a "buy" rating and price target of $28 on the Iconix stock.

Iconix has been on an acquisition spree, having recently picked up casual clothing brand Ocean Pacific and announced plans to purchase women's active wear brand Danskin last month.

Rocawear, which was co-founded by Shawn Carter, the hip hop artist known as Jay-Z, has annual sales of over $700 million.

The Rocawear acquisition, the largest deal Iconix has done, will be funded from proceeds of a loan made to the company by one or more affiliates of Lehman Brothers Inc., and is expected to close in March.

The terms of the deal include an additional $35 million in future performance-based stock payment, the company said.

The stock was trading down 5 percent at $20.08 in late afternoon trade on the Nasdaq.

JOINT VENTURE WITH JAY-Z

As part of the deal, Iconix will also enter into a separate joint venture with Carter, to establish a new brand management and licensing company to identify brands to be acquired or developed.

Carter will continue to be chief creative officer of the Rocawear brand, Iconix said.

He will retain his stake in the operating company and his two partners, Alex Bize and Norton Cher, will continue to run the company and enter into a long-term license agreement with Iconix for the core young men's apparel category.

2007 OUTLOOK