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MILAN — Fifth time lucky?
Prada chief Patrizio Bertelli has pulled the plug on an initial public offering of the group four times, but now says he is looking at 2008 for a potential IPO of the luxury goods group.
The sale of 5 percent of Prada to Banca Intesa is due to become final today in a deal that puts an overall value on the group of almost $4 billion. On Thursday, Bertelli told an Italian financial daily that he is reevaluating a stock market listing. A Prada spokesman told WWD, “The IPO will not happen in 2007, but next year we will set things in motion for a possible listing in 2008.”
In the interview with Il Sole, Bertelli said the listing would guarantee “the best opportunities to grow and develop the Prada Group in the coming years.”
This is the first time in two years that Bertelli has raised the subject of a listing. Last month, the executive was vague about the possibility of an IPO and declined to provide a possible date. “We’ll see when the best moment arrives,” he reluctantly responded to inquiries at a conference here.
But given Bertelli’s on-again, off-again track record, analysts are skeptical about his renewed interest in an IPO. A luxury goods analyst here who spoke on condition of anonymity said it was no coincidence Bertelli spoke about an IPO just as the agreement with Banca Intesa was taking shape.
“Intesa is putting the money in; the only way to get out of it is through a listing,” said the analyst.
Banca Intesa is buying 5 percent of Prada for 100 million euros, or $132.6 million at current exchange, which would give Prada an enterprise value of 2.75 billion euros, or $3.64 billion. Intesa, with a pool of other banks, will lend Prada 200 million euros, or $265.2 million, as part of another funding package, the terms of which are not yet final, according to the Prada spokesman.
“It’s not this 5 percent that weighs on Bertelli’s decisions, but what came before this,” said another analyst. “Nobody [outside Prada and the banks] knows the terms of the contracts signed by Bertelli with the banks.”
Last year, ITMD Investments B.V., the company that controls Prada SpA, signed a loan agreement with a pool of Italian banks that provided funding of 800 million euros, or $1 billion, which helped repay a bond of 700 million euros, or $928.2 million. The latter bond was issued in December 2001 by Deutsche Bank, following Prada’s spending spree in the late Nineties, when it added brands Jil Sander, Church’s Shoes and Helmut Lang to its stable. Last year, Prada SpA signed an agreement with four Italian and international banks for a line of credit of 700 million euros, or $928.2 million.
The spokesman said Thursday that Prada SpA’s debt currently is “below 700 million euros,” or $928.2 million.
A New York analyst said a listing “would make more sense for a fashion-driven, volatile business to globally expand” than a long-term relationship with “banks, which are typically conservative.”
Speculation about Prada going public first emerged in spring 2000, and most recently in 2004. Citing negative market conditions on each occasion, Bertelli has pulled the plug on an IPO four times. While there are few indications at this stage that the fifth time would do the trick, some in the industry believe a listing is the most sensible option for expanding the group in the increasingly competitive luxury goods market.
However, other observers doubted the strong-willed executive would welcome outside interference and the rigors of constant communication and transparency. A public listing would mean a whole group of new shareholders for Bertelli, who is accustomed to doing things his own way.
“Bertelli is a tricky personality to manage, and he’s not very forgiving of people who are willing to speak their minds,” said a financial source familiar with Prada. However, the source said this was a good time to go public. “The stock market is hitting all-time highs, and the luxury sector has been performing very well, with a few exceptions.”
Asked if Prada’s previous and failed attempts to go public had damaged the company’s credibility in the eyes of investors, the source said, “Their past won’t hurt them. Of course, failed attempts to go public are never good, but the market will give them a chance. Don’t forget, half of the investment community that was around when Prada made its first announcements has moved on and, anyway, investors try to be rational about these things. Of course, they’re going to take Prada seriously. It’s a sizable company, and it’s a good candidate for the stock market.”
Antoine Belge, a luxury goods analyst with HSBC in Paris, concurred. “It’s definitely a good time to go public. The environment is much better and the valuation multiples are better than they were a few years ago,” he said. “Of course, there are worries about Japan, but it’s still a good environment for luxury. Keep in mind that since its last attempt to go public, Prada has streamlined its portfolio of companies and is more focused on the Prada brand now.”
A luxury goods analyst here said Prada’s “financial situation is complicated, but not worrying as much as two years ago.”
And there are few doubts that Prada remains a well-run company, with extensive manufacturing holdings. While its results over the last year have been hit by problems at and then the eventual sales of Jil Sander and Helmut Lang, the core Prada and Miu Miu brands remain vibrant and subsidiaries such as Car Shoe are growing rapidly.
“Mr. Bertelli creates value and knows how to grow his company,” said Bain & Co. partner Andrea Ciccoli. “The Bourse shows great interest in a group such as Prada and would greatly appreciate a listing.”
Giacomo Santucci, luxury goods consultant at Value Partners here and a former executive at Prada and Gucci Group, said, “Prada’s IPO comes with favorable market conditions, which are set to last, and acknowledges Patrizio Bertelli’s successful portfolio rationalization coupled with the enhancement of the two top brands, Prada and Miu Miu.”
In particular, Santucci praised the “amazing” work done on Miu Miu, the injection of “new life” into the brand, referring to recent steps taken to bring it out of the shadow of the Prada label.
“Prada is today the only group which can flaunt two top brands with an incredibly high potential,” said Santucci. “Patrizio Bertelli can leverage on high multiples, in recognition of the excellent entrepreneurial results he achieved. Further, I believe that Prada’s performances will continue to improve. The market will acknowledge this, and success will be double.”
In August, Prada SpA, which includes the Prada, Miu Miu, Car Shoe and Azzedine Alaïa labels, reported a fivefold increase in net profits last year on a 10 percent rise in sales. Net profits rose to 47 million euros, or, $62.3 million, on sales of 1.33 billion euros, or $1.76 billion. The 2005 figures do not take into account the Helmut Lang and Jil Sander brands’ performances last year. Those two brands fall under the ITMD Investments B.V. umbrella. In 2005, Change Capital Partners, based in London, acquired Jil Sander, and Link Theory Holdings Co. Ltd., in Tokyo, bought Helmut Lang.
Commenting on the figures at the time, Bertelli said, “The financial restructuring is well under way. We can now speed up our investment plans and leverage the strong momentum of all our brands worldwide.”
The Prada brand continued to be the group’s cash cow, generating sales of 1.12 billion euros, or $1.48 billion, last year.
Sales at Miu Miu grew 17 percent to 126 million euros, or $167 million. Car Shoe nearly tripled its revenues, to 17 million euros, or $22.5 million, in 2005. Last year, Prada expanded its offering of handbags and leather goods, developed existing stores, introduced new store concepts for the Miu Miu and Car Shoe brands, increased the mix of products and sell-through and improved the efficiency of warehouse and production systems.
Prada is gearing up to buy the remainder of shoemaker Church’s by the end of the year. The private equity fund Equinox, which bought 55 percent of Church’s from Prada in 2003, has an option to sell control of the company back to the Italian fashion house. Church’s just tapped former LVMH Moët Hennessy Louis Vuitton Italia executive Agostino Ropolo to head retail development for the footwear brand.