By  on January 28, 2009

MILAN — Safilo Group SpA is looking for a white knight.

Safilo’s majority shareholder Only 3T SpA said Tuesday it was weighing ways “to strengthen and develop” the debt-ridden Italian eyewear firm and that it had contacted “a few potential partners.”

“The shareholder specifies that the situation is in a negotiation phase and that no agreement has been reached at this time,” Only 3T stated.

The announcement was prompted by a local newspaper report, which said Safilo chief executive officer Roberto Vedovotto, who rejoined the firm in November, was working on a plan to delist Safilo from the Milan Bourse by bringing in private equity investment.

Suitors reportedly include Bain Capital, Apax Partners and CVC Capital Partners. Neither Bain nor Apax returned calls Tuesday seeking comment, while CVC declined to comment.

The Tabacchi family controls 39.8 percent of Safilo through Only 3T.

Unicredit, which upgraded its recommendation on Safilo to “hold” following Tuesday’s announcement, said a change in the eyewear company’s share capital structure was possible following recent stock purchases by board members, but questioned the viability of a leveraged buyout.

“The private equity option appears financially stretched…given Safilo’s leverage and the current valuation,” Unicredit said in a note — although CVC is understood to have raised around 11 billion euros, or $14.29 billion at current exchange, for new deals in Europe and not to require leverage for investments in the short term.

Safilo’s net financial debt is set to exceed 580 million euros, or $753.8 million, by the end of fiscal 2008, according to market estimates. The stock trades at six times EV/EBITDA.

Unicredit maintained that a financial and operating restructuring was “a top priority” for Safilo, but that private equity involvement was not the best solution.

Safilo shares gained 9.5 percent to 0.75 euros, or 97 cents, at the close of trading in Milan, giving the firm a market value of 214 million euros, or $278.1 million.

In November, Safilo, which has licenses with Giorgio Armani, Dior, Gucci and Valentino, among others, revised down its 2008 revenue and margin forecasts for the second straight quarter — predicting a 2 percent drop in revenues and a net income target of 1 percent of sales — after a 63 percent decline in earnings in the first nine months of the year.

Subsequently, credit rating agencies and equity analysts downgraded the eyewear company on concerns the weakening market conditions could put further pressure on its already vulnerable balance sheet.

On Monday, Safilo said it planned to shutter all four of its manufacturing plants in Italy on a rotating basis over the next two months, following a rapid slowdown in demand for designer frames. The closures, which are temporary, will be staggered through March 28 and could affect up to 2,700 staffers. The first factory suspension went into effect last week.

Safilo has five plants, the other being in Slovenia. It also selectively outsources production to third-party manufacturers in Asia, Italy and the U.S.

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