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Putting on the Brakes: Delay in Hilfiger IPO May Have Ripple Effect

Apax Partners may have put a temporary stop on Tommy Hilfiger's initial public offering, but that decision hasn't rattled other fashion firms.

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LONDON — Apax Partners may have put a temporary stop on Tommy Hilfiger’s initial public offering, but that decision hasn’t rattled other fashion firms with stock market aspirations — at least for now.

This story first appeared in the January 25, 2008 issue of WWD.  Subscribe Today.

On Thursday, one day before the road show was set to begin, Apax said volatile market conditions had forced it to postpone the Hilfiger Group IPO in the interest of the company. “For now, it’s business as usual,” the statement said.

The Hilfiger offering, which Apax never formally unveiled, was set to lead a pack of fashion IPOs this year, including Prada SpA and Ferragamo SpA. Both of those companies, however, said Thursday that their plans remain unchanged.

“Nothing has changed from the earlier stated position of the company’s desire to list in 2008,” said a Ferragamo spokesman. “It is a particularly delicate moment, and for that reason we are still making no comment about our IPO.”

Prada offered a similar update: “We are working with our advisers to determine the best timing. No decision has been made,” a spokesman said.

Industry sources have indicated Prada won’t make any decision for another few months, when market conditions are clearer. If Prada does eventually go ahead with its oft-postponed IPO this year, sources have said it will be in the latter part of 2008.

Prada, which is 95 percent owned by the Prada family, has pulled the plug on its IPO three times in the last seven years, citing market volatility.

With regard to Hilfiger, a source close to the company said Apax could wait “up to a year” to rekindle the IPO flame. The source added that the thinking behind Apax’s decision was simple. “The Hilfiger business is going great guns, investor feedback was positive, and the thinking was, why jeopardize a good thing?” the source said, adding, “In time, the business will be bigger and better. Apax can wait, there is no need to exit now.”

Indeed, the planned listing appeared to be precocious on the part of Apax, which only purchased Hilfiger in September 2005. Usually, private equity investors look to flip their assets within three to five years or more.

“Normally speaking, two years is a relatively short time, and Apax would have been paying close to market peak for the brand when they bought it,” said Luca Solca, a senior research analyst at Sanford C. Bernstein Ltd. in London.

Apax paid $1.6 billion for Hilfiger two years ago and, until earlier this week, the brand was set to be valued at $3 billion to $4 billion, including debt. Apax was ready to list Hilfiger in Amsterdam on Euronext, the pan-European stock exchange.

In Thursday’s statement Apax called the planned IPO “a logical step in the development of the company. Tommy Hilfiger is a very strong business and has been performing well in all geographical markets and product divisions over the past two years.”

Despite the thwarted IPO, both Solca and Andrew Wade, an analyst at Seymour Pierce in London, were careful about branding 2008 a bad year for fashion and retail. “I think fashion and luxury brands will actually perform better than other sectors in the future,” said Solca. “What we’re going to be seeing are expanding multiples, contracting earnings — and pretty stable stock prices.”

Wade said that while Christmas was tough for U.K. retailers, it’s hard to say whether 2008 will be a gloomy one. “It’s too early to call right now. We’d just be guessing,” he said.

On Thursday, Italy’s S&P/MIB Index closed up 3.9 percent to 34,237. All major fashion and luxury stocks followed suit, climbing midsingle-digit percentages at the close of trading. Bulgari SpA closed up 3.4 percent to 7.56 euros, or $11.03, while Tod’s SpA closed up 7.1 percent to 40.04 euros, or $58.47.

On the Paris Bourse, PPR closed up 12.08 percent to 95.45 euros, or $140.30, after it reported strong sales growth in the fourth quarter, while LVMH Moët Hennessy Louis Vuitton closed up 8.97 percent to 70.31 euros, or $103.35. In London, the FTSE 100 closed up 4.75 percent to 5,875.80, with fashion and luxury stocks rising in the single digits.

Burberry Group plc closed up 4.91 percent to 4 pounds, or $7.88, while Mulberry Group plc closed up 2.62 percent to 1.76 pounds, or $3.47. On the Swiss stock exchange, meanwhile, Compagnie Financière Richemont closed up 5.84 percent to 61.65 Swiss francs, or $56.76, after losing ground the day before when the luxury group said sales in the U.S. and Japan were slow in December.

Fashion industry observers were divided about the broader ramifications of Apax’s decision. Armando Branchini, deputy chairman of Milan-based luxury goods consultancy Intercorporate, said luxury and high-end IPOs are a long-term game.

“The reason why some investors decide to invest in companies in the high-end of the luxury market is not to get multiple results in a very short time, but because these companies have a very strong heritage. In the medium to long term, they are in a position of guaranteeing much higher results than more volatile shares,” he said.

Other market observers were less upbeat. “When companies start to postpone their IPOs, it can have a domino effect, which is never positive,” said Robert Burke of Robert Burke Associates, a fashion consultancy based in New York. “The reality is business has to go on and the luxury consumer, certainly at the high level, is continuing to spend.”

Burke highlighted sustained interest in the luxury sector among foreign investors, given robust development in emerging markets like the Middle East, Russia, Asia and India. “We’re seeing luxury consumers growing in significant numbers in those countries,” helping to offset any weakening in U.S. and Europe, Burke said.

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