By  on May 18, 2007

MILAN — Private equity firm Permira appears well placed to secure a majority stake in Valentino Fashion Group SpA.

Late Thursday evening, Permira said it had entered exclusive negotiations with the members of the Marzotto family to acquire its collective stake of about 24 percent in VFG. This would be in addition to the 29.6 percent holding in the company Permira has agreed to buy from the Marzotto family's investment vehicle, International Capital Growth Sarl.

The talks to buy more shares expire May 28 and, if successful, would give Permira a 53.6 percent stake in VFG.

Under these terms, the Marzottos are not allowed to negotiate with potential rival bidder Carlyle Group until after May 28. A Carlyle spokeswoman did not return a call seeking comment.

As part of the agreement, Permira also will enter into talks with the Marzottos about "co-investment agreements" in Permira's Red & Black Lux Sarl subsidiary, the same vehicle Permira is using to buy the initial 29.6 percent VFG stake for 782.6 million euros, or $1.06 billion.

Permira said it is offering the Marzottos 35 euros, or $47.60, a share, its original offer price. The fund also will pay an additional 65 euro cents a share if the parties strike a deal before May 24, when VFG is due to pay its 2006 dividends.

Permira struck the deal for the exclusive talks with Tidus Srl, a company in which Gaetano Marzotto and his brothers hold their shares, as well as for Paolo Marzotto's PFC Srl and other members of the Marzotto family.

Earlier Thursday, VFG said the board had examined Permira's offer to launch a takeover bid for the entire company. VFG went on to say that it will cooperate with Permira's request to execute a "confirmatory due diligence" on the company by the end of this month.

Also earlier Thursday, Carlyle issued a statement saying it is keeping its options open in terms of market opportunities and addressing market speculation about a counter bid.

"At the current time, no decision has been made," the company said, referring to reports that Carlyle was preparing a 36 euro, or $48.96, a share offer for VFG.As reported Thursday, Permira's agreement to buy 29.6 percent of VFG makes it the company's single largest shareholder. The deal values the entire company at about 2.7 billion euros, or $3.7 billion. Carlyle Group was also in the process of courting VFG shareholders in hopes of buying a stake in the company.

VFG's biggest asset is its 50.9 percent stake in men's wear giant Hugo Boss AG, a company listed on the Frankfurt Stock Exchange with a market capitalization of about 3.45 billion euros, or $4.69 billion. Any company launching a full-fledged takeover bid for VFG also would have to launch a corresponding takeover bid for Hugo Boss. VFG also owns the Valentino fashion house, men's brand Lebole and holds licensing deals for M Missoni and Marlboro Classics.

Investors snapped up VFG shares on Thursday, sending them up 3.96 percent to close at 36.73 euros, or $49.95. They were waiting to see how VFG's shareholders, namely the remaining Marzotto family members and VFG chairman Antonio Favrin, would react to the Permira offer.

Hugo Boss' ordinary shares gained 3.23 percent Thursday to close at 53.39 euros, or $72.61.

Favrin owns almost 20 percent of VFG through his holding company, Canova Investmenti Srl. He is said to be estranged from the Marzottos after reportedly teaming up with Carlyle in an attempt to take over the company.

On Thursday, a Canova spokeswoman declined to comment on the financial company's intentions. "There's a market out there and we are spectators," she said.

A source close to the family said it would be logical for the Marzottos to form an alliance with Permira to edge out Favrin. "Relations between Canova Finanziaria and the remaining Marzottos are very bad — awful, in fact," he said.

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