By  on February 9, 2009

MILAN — Safilo Group SpA’s plans to remedy its financial ills by bringing in private equity investment may have hit a snag.

Sources said Safilo majority shareholder 3T SpA met with funds — speculation has focused on Bain Capital, Apax Partners and CVC Capital Partners — but talks stalled over control.

The Tabacchi family, which owns 39.8 percent of Safilo through Only 3T, does not want to relinquish a controlling interest in the eyewear firm even though this implied an unrealistic valuation of its stake in the current climate, sources said.

“For there to be an upside for the Tabacchi family, its stake has to be valued more than its debt but [Safilo] is deeply underwater,” a source said. “This is the reason talks are stalling.”

Safilo, which has licenses with Giorgio Armani, Dior, Gucci and Valentino among others, is under pressure because of net debts, which are set to exceed 580 million euros, or $744.6 million at current exchange, by the end of fiscal 2008, according to market estimates. The stock trades at six times EV/EBITDA, and on Friday fell 1.2 percent to 0.73 euros, or 93 cents, giving the firm a market capitalization of 206.9 million euros, or $265.6 million.

Only 3T said last month it was weighing ways “to strengthen and develop” Safilo and had contacted “a few potential partners” but that no agreement had been reached. There has been speculation that Safilo’s management was working on a plan to delist the company from the Milan Bourse.

In November, Safilo 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.

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