Kering in Talks to Sell La Redoute to Managers

The French conglomerate said it had opted for a takeover plan presented by two senior managers in its mail-order division.

PARIS — After protracted and politically sensitive talks to offload La Redoute, Kering announced on Wednesday it had entered exclusive negotiations with two of its senior managers who have presented a takeover plan for the struggling catalog retailer, plus delivery network Relais Colis.

Nathalie Balla, chairman and chief executive officer of La Redoute, and Eric Courteille, chief administrative officer of mail-order division Redcats, were the latest bidders to emerge in the process, which practically completes Kering’s transition out of retail into fashion and accessories in the luxury and sport-lifestyle segments.

The French parent of Gucci, Balenciaga, Stella McCartney, Puma, Boucheron and other brands said its board of directors met to consider a total of four offers on the table. Balla and Courteille, who both took on their respective positions in 2009, presented a plan backed by the companies’ managers.

“Under the terms of the negotiation offer, the buyers would create a new entity and would invest in it in a personal capacity,” Kering said.

The new firm would acquire all the shares of La Redoute, Redoute International and Relais Colis. It would be chaired by Balla and Courteille, who would jointly have the majority shareholding, with the remainder of the capital held by a team of managers.

Kering said its plan was based on a product lineup centered on clothing and home wares, aimed at women over 30, with a combination of own brands, outside brands and a selective marketplace. La Redoute, which has lagged other e-tailers in recent years, plans to improve its online store, delivery and after-sales service.

Kering has committed to recapitalizing La Redoute and Relais Colis before handing them over to their new owners, in order to fund transformation and modernization efforts, including plans to update logistics and IT systems and cover interim losses.

Though Kering did not publish a breakdown of Redcats earnings in 2012, estimates suggest La Redoute posted sales of 1.1 billion euros, or $1.4 billion at average exchange for the period, logging an operating loss in the range of 30 million euros to 40 million euros, or $38.6 million to $51.4 million.

The sale of La Redoute, expected to be accompanied by “significant” job losses, has unleashed a maelstrom of criticism in France, beset by high unemployment and moribund economic growth. Unions have demonstrated against the sale, while senior members of the ruling Socialistparty have waded into the debate.

In a statement, Balla and Courteille said they plan to speed up the transformation of the company to guarantee a return to growth.

“This plan will get all La Redoute and Relais Colis staff working together for the success of the business. It intends to keep La Redoute’s business in its historic employment area and minimize as much as possible its impact on jobs,” they said.

François-Henri Pinault, chairman and ceo of Kering, said it considered the existing managers the best people to secure the future of La Redoute. Other rumored bidders included private equity firms The Gores Group, H.I.G.Capital and OpCapita, in addition to French developer Altarea Cogedim.

Kering, already hit by slowing demand for luxury, said last month that the disposal of La Redoute and one-off charges at Puma would send its net income “down very significantly” in 2013 versus a year ago.

The group changed its name from PPR this year to mark its transformation into a pure player in apparel and accessories.

PPR, originally an acronym for Pinault-Printemps-Redoute, began edging out of its roots in retail in 2006 when it sold the Printemps retail chain, following up with a stock market listing for African trading company CFAO in 2009 and a sale of the Conforama furniture chain to Steinhoff International in 2010.

Earlier this year, it demerged and floated Fnac, a retailer of books, music and home electronics.
Kering said in 2011 it had postponed the sale of the Redcats division due to adverse market conditions, opting subsequently to dispose of its properties piecemeal, beginning with the sale of U.S. plus-size clothing retailer Avenue in March 2012. Most recently, it sold its Nordic brands Ellos and Jotex to Nordic Capital Fund VII.

Once the sale of La Redoute and Relais Colis goes through, the last remaining property in the Redcats portfolio will be catalog retailer Daxon.

As reported, Pinault hopes to triple the size of the group’s core luxury and sport-lifestyle divisions by 2020 and increase revenues to 24 billion euros, or $32.5 billion at current exchange.