MILAN -- Mexican industrialist Fabio Covarrubias said Wednesday he is rounding the final bend of talks to acquire troubled designer label producer GFT SpA.
"I would say we have reached agreement on 95 percent of the issues on the table. The outstanding 5 percent are technical points," said Covarrubias during an interview in Milan. He was here to meet with Mediobanca, the merchant bank that has been masterminding the GFT rescue operation, and GFT's creditor banks to outline the final aspects of his bid.
"On the other hand, we are still in talks, and this agreement isn't done until it's done," cautioned the 36-year-old entrepreneur, who is a leading businessman in his own country and claims a net worth of some $900 million.
Covarrubias, who acquired GFT's Mexican operations last March, said he has offered to pay $212 million (360 billion lire) at current exchange in two bond payments to acquire full control of GFT, which is currently in the hands of the banks.
Under terms of the accord, an initial payment of $74 million (125 billion lire) would be made at the signing of the preliminary agreement. This signing could take place at the beginning of March, if the final phase of talks moves according to plan.
The balance would be paid at the end of July, with Covarrubias then acquiring full control.
In exchange, the banks have agreed to write off 40 percent of GFT's total debts, which amount to about $354 million (600 billion lire), not including debts incurred by GFT's German operations.
If the agreement is concluded on these terms, GFT would practically be debt-free at the moment Covarrubias assumes control.
Although he declined to comment on the points still being discussed, sources familiar with the talks said the parties are dickering over some $5 million in interest payments for the first two months of the year.
Along with a group of partners, Covarrubias controls interests in Mexico in real estate, fertilizers and finance. He said he had been looking to invest in the textile and apparel sector for some time.
After acquiring GFT de Mexico SA last year, his interest in the mother company started to grow, particularly in view of the opportunities opened up by the North American Free Trade Agreement, he said."We saw clear opportunities in the textile sector after NAFTA, particularly with respect to the reduction of import duties to the U.S.," he said. GFT in Mexico is currently exporting both textiles and apparel into the U.S., including apparel made for the U.S. arm of GFT.
Furthermore, Covarrubias sees GFT as a leader in its field that has strong growth opportunities once its current financial problems are resolved.
"We do not forget that GFT has significant experience in this business, in production, quality, technology. Together these factors have fueled our interest in the company," he said.
Covarrubias also said he thinks GFT has the chance to grow despite the tough market.
"GFT occupies a niche market [in high-end apparel] and currently controls about 7 percent of the world market share in its sector. We feel volumes can increase -- to the U.S., to the Far East -- while in Italy, it is already a market leader," Covarrubias said.
Although he said it was premature to discuss his strategy for GFT, he did say his priority would be to strengthen GFT's relationships with its stable of designers.
"My first step absolutely would be to try and reinforce the agreements with the designers. I have to make sure, before anything else, not to risk GFT's core business," he asserted.
GFT produces various lines for Giorgio Armani, Valentino, Emanuel Ungaro, Claude Montana, Calvin Klein, Andrew Fezza, Joseph Abboud and Pierre Cardin. Armani is the most significant business in terms of sales, representing nearly 21 percent of GFT's overall business.
Covarrubias, who was born in Italy and whose mother is Italian, has already met with Giorgio Armani and Valentino, and had scheduled a meeting in Paris with Ungaro.
"We have had some very interesting meetings with the designers," he said, although he acknowledged that hammering out new agreements will be difficult.
"We'd like to hope there will be a little bit of chemistry in the relationship with the designers as well," Covarrubias said with a smile. "We will need to reach an agreement. They are involved in the problems -- GFT is a supplier to them -- and we need to work out a way that we can make money, they can make money, and GFT can grow."Covarrubias also said he wanted to give a new impetus to GFT's work force.
"We want to be able to give the thousands of people who work for GFT a sense of trust, a sense that the company will continue. We also want to give them a pinch of adrenaline.
"At the same time, we will have to review the entire organization, the strategic plan that doesn't exist yet."
Covarrubias said he has reached an agreement with GFT's current managing director Clemente Signoroni, who would stay at his post. Other areas where Covarrubias said he would plan to focus include the development of the private label business.
He also said he has agreed to keep the Rivetti family represented in the company it founded, with a minority stake and possibly a seat on the board.
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