Prada IPO Values Firm at Up to $15.8 Billion

On Sunday the Italian luxury goods company outlined the financial details of its long-awaited initial public offering.

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HONG KONG — During a fittingly East-meets-West afternoon tea complete with Chinese dim sum and Italian pastries, Prada on Sunday outlined the financial details of its long-awaited initial public offering, which could raise as much as $2.61 billion.

This story first appeared in the June 13, 2011 issue of WWD.  Subscribe Today.

Executives from the company’s board spoke by video conference from Milan and only took a handful of questions from the journalists assembled at the Shangri-La hotel here.

The shares will be priced between 36.50 and 48 Hong Kong dollars each, or $4.69 and $6.17 at current exchange, in line with expectations and previous reports. The company will sell 423.3 million shares, or nearly 17 percent of its capital. If the IPO is priced at the top end of that range, the company would raise as much as 20.32 billion Hong Kong dollars, or $2.61 billion.

The final share price will be determined on June 17 and the stock will start trading on the exchange June 24 under the stock symbol 1913 — a nod to the year of the company’s founding.

“Our decision to go public in Hong Kong shows our interest in Asia today and in Asia as it will be in the future,” said Prada chief executive officer Patrizio Bertelli, flanked by members of his management team. “I’m confident we’ve made the right decision.”

Last week and this week, the company is holding road show presentations in Singapore, Hong Kong, London, Milan and New York. But the real buzz has been in Hong Kong, where Prada billboards are ubiquitous and the entire town is talking about the year’s most luxurious IPO. Bertelli pointed out that Prada is the first luxury fashion brand and the first Italian company to go public in Hong Kong. But even that prospect might not be enough to offset what some observers consider a high asking price.

At the top of the price range, the offer values the company at $15.8 billion. That is about 28 times Prada’s 2011 expected net profit of 400 million euros, or about $574 million. When asked about the logic behind such a high price, Prada vice president Carlo Mazzi brushed aside any potential concerns.

“We’re not worried, we’re just tired from the road show.” he quipped. “The price reflects the value of the company. As for speculation that it’s expensive, we don’t comment, but we don’t share this opinion. The market can decide if it’s a fair price.”

As reporters delved into details, Bertelli bristled at questions about remuneration, specifically a revelation that creative director and group president Miuccia Prada earned 9.7 million euros, or $13.9 million, and Bertelli himself pocketed 10 million euros, or $14.3 million, for their work last year.

As Bertelli began to reply, Mazzi pointed out that these are the heads of design and business for a major corporation.

“You can consider and compare to other companies in the luxury sector,” he interjected. “These compensations are in line with others. There is no problem regarding this point. At the end of the day, it’s paid by the company and the results of the company’s [performance] are what you can see.”

Still, the figures from two of the industry’s biggest publicly listed companies tell a different story, as Prada and Bertelli were each paid more than double what either LVMH Moët Hennessy Louis Vuitton chairman and ceo Bernard Arnault or PPR chief François-Henri Pinault earned.


Prada executives’ defensive tone surfaced again at another point during the news conference when a Chinese journalist asked whether it was true that 80 percent of Prada’s goods are made in China and merely finished in Italy. Management blanched at the question.

“I’m afraid that is not the correct proportion,” Bertelli said. “This is not what happens. What we do is send semifinished products to China, everything is finished in Italy. Raw materials are procured from [Italy]. What we could consider the Chinese percentage of contribution is maybe 20 percent.”

Executives also brushed off a question about the Italian capital gains tax. Under current regulations, Hong Kong investors will be expected to pay 12.5 percent tax.

“The only thing we can ask is that investors consider our figures and look at our results,” said Mazzi.

Prada has said that it will use funds raised from the IPO to expand its retail network, adding 80 directly operated stores each year for the next two years. Twenty to 25 of those shops will be located in Asia, which currently accounts for 43 percent of the group’s sales and is the company’s fastest-growing market.

“Stylewise, fashionwise, Southeast Asia is certainly much younger than us [in Europe]. Hong Kong, Taiwan, Singapore, Beijing, Shanghai — this is where younger style is coming up. The Asian markets are far more contemporary than us.” Bertelli said.

The store openings will be divided evenly between the Prada and Miu Miu brands.

The group also owns Church’s shoe brand and Car Shoes. Currently, the company has 319 boutiques worldwide, plus 33 franchised stores. Armando Tolomelli, the group’s controlling director, noted that Prada’s retail expansion will encompass more than Asia.

“Over the next three years, we have the opportunity to grow in regions where we are already present, but where there is room to grow, such as North America, and Central and Northern Europe, where we’re not even present,” he said. “And we will enter new markets such as Latin America, the Russian Federation and the Gulf region.”

Prada is just the latest in a string of listings in Hong Kong that are designed to both raise funds and brand profiles in the fast-growing and increasingly important Chinese market. Just last week, a source said Samsonite has finalized its IPO price at 14.50 Hong Kong dollars, or $1.86, per share. That is on the lower end of its indicative price range of 13.50 to 17.50 Hong Kong dollars, or $1.73 to $2.25, per share. The source said the Samsonite offer was four times oversubscribed and the company is on track to raise $1.25 billion.

Other brands, like Coach and Burberry, are also said to be eyeing a Hong Kong listing. For two consecutive years, the city has been the world’s biggest listing market. Firms raised more than $50 billion in Hong Kong offerings last year.


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