PPR Details CFAO Listing

PPR's CFAO listing could raise up to 1 billion euros, or $1.5 billion at current exchange.

PARIS — PPR SA on Tuesday took the first step toward fulfilling its aim to reconfigure its conglomerate business with the details of the spin off of CFAO, its African distribution unit, which could raise up to 1 billion euros, or $1.5 billion at current exchange.

This story first appeared in the November 18, 2009 issue of WWD.  Subscribe Today.

The focus is now likely to shift to PPR’s eventual plans for its retail units — bookseller Fnac, home furnishings chain Conforama and mail-order business Redcats — which might be sold off to turn the company into a pure luxury goods and lifestyle player.

“We continue to view the [CFAO] divestiture as a step in the right direction, but would like to see further actions related to more ‘difficult’ divestitures, such as Fnac or Conforama, down the road,” said Bernstein Research analyst Luca Solca.

As reported in October, PPR revealed plans to give up control of CFAO, a distributor of cars and pharmaceuticals in Africa, because the unit doesn’t fit with its remaining businesses, which also includes Gucci Group and a majority stake in activewear firm Puma AG.

The planned spin-off spurred speculation PPR may want to use the proceeds to pursue luxury sector acquisitions. However, chief financial officer Jean-François Palus said last month that PPR expects to use the cash raised from the listing of CFAO to reinforce the group’s balance sheet and reduce net debt, which stood at 6.4 billion euros, or $8.5 billion, at the end of June.

A spokeswoman for PPR on Tuesday reiterated that position, saying acquisitions are not a priority for the group at the moment.

Earlier this year, chief executive François-Henri Pinault ruled out any acquisitions in the near term, indicating will “not consider any purchases in 2009, regardless of how cheap they may be.”

PPR is offering 31 million CFAO shares, representing 50.4 percent of the business, and may sell a further 4.65 million shares for a total of 35.65 million shares priced between 24.80 and 29 euros each, or $37.10 and $43.40 at current exchange.

CFAO shares are expected to start trading on the Paris stock exchange on Dec. 3.

Impacted by the economic crisis and the sharp downturn of the auto industry, CFAO’s sales declined 16.9 percent to 598 million euros, or $894 million, in the third quarter. But the business remains one of PPR’s most profitable units, with sales expected to reach 2.5 billion euros, or $3.74 billion, in 2009.

Bernstein’s Solca said PPR’s remaining stake in the unit after the flotation means the company could benefit in any potential increase in the value of CFAO, given its exposure to growing emerging markets.

PPR shares closed down 2.2 percent at 82.11 euros, or $122.85, Tuesday.