By  on July 7, 2009

MILAN — The future of Italian eyewear firm Safilo Group SpA could be decided by the end of the month.

The debt-ridden company’s majority shareholder, Only 3T SpA, met again Friday with private equity bidders Bain Capital and PAI Partners to further discuss a possible stake sale, sources said Monday.

“Talks are progressing well,” a source said. “Both [funds] have submitted proposals that make sense. Bain’s is the more industrial, while PAI’s is more financial….A deal could come in the next three to four weeks.”

More than 30 percent of the company is on the table, the sources said. The Tabacchi family controls 39.9 percent of Safilo via Only 3T.

Safilo, which has licenses with Giorgio Armani, Dior, Gucci and Valentino, among others, is seeking to strengthen its capital structure as declining demand and disproportionately large debts weigh on its balance sheet.

As of March 31, net debts totaled 617.7 million euros, or $863.8 million at current exchange. First quarter net profits fell 87 percent to 1.7 million euros, or $2.2 million, after sales dropped 11.7 percent. As a result, the company has been forced to downsize some production facilities in Italy and Slovenia, as well as lay off more than 1,000 workers as consumers curb spending on high-end eyewear. Safilo needs a cash injection of at least 250 million euros, or $349.6 million, according to analysts.

In addition, Standard & Poor’s Ratings Services on Monday downgraded Safilo’s long-term corporate credit rating to “SD” from “CC,” after the manufacturer’s lending banks agreed last week to postpone to the end of the year a loan payment due June 30 and waiver the respective debt covenants.

Meanwhile, Safilo is under investigation by Italy’s financial police for the alleged misuse of the Made in Italy label on products at least part manufactured in China, a company spokesman confirmed Monday. He gave no other details.

Safilo’s share price declined 6.2 percent to 0.41 euros, or 57 cents, at the close of trading in Milan.

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