PARIS — PPR thinks luxury goods and sneakers make a perfect match, and it's about to spend more than $7 billion to prove it.
The French conglomerate that owns Gucci Group on Tuesday said it purchased a controlling stake in Puma AG and that it would make a "friendly" offer to buy out the rest of the German activewear firm's shares.
PPR said it paid 1.4 billion euros, or $1.87 billion at current exchange, to Mayfair, the private equity firm of German billionaires Gunter and Daniela Herz, to gain a 27.1 percent share of Puma. The price was equal to 330 euros, or $440.55, a share and PPR said it would offer the same amount for the rest of Puma's publicly traded shares in a deal that values the German firm at 5.3 billion euros, or $7.07 billion.
"This is a favorable moment for the convergence of sport and fashion," said François-Henri Pinault, chairman and chief executive officer of PPR.
The goal is to make Puma the "world leader" among sport lifestyle brands, added Pinault, even though PPR is entering a sector rife with stiff competition from the likes of Nike and Adidas. Consolidation also has changed the landscape of the industry recently, with Adidas, Puma's archrival from its hometown of Herzogenaurach, Germany, having purchased American giant Reebok a year ago.
Pinault said the transaction comes as more consumers "mix and match" luxury items with less expensive pieces, making Puma a "perfect match" with PPR's other brands, from Yves Saint Laurent and Balenciaga to Stella McCartney (who has a tie-up with Adidas) and Alexander McQueen, with whom Puma has collaborated in the past.
Pinault said PPR would "capitalize" on growth opportunities for Puma by opening more directly owned stores, which today only account for 15 percent of Puma's sales. Puma recently has rolled out concept stores in New York; London; Hanover, Germany, and Tokyo, where it can spotlight exclusive collaborations, including 96hours by Neil Barrett and Puma by MiharaYasuhiro.
And there would be more to come, Pinault said, adding the U.S. would be a priority and that Puma needed to "consolidate its presence" in the North American market.Pinault mentioned the possibility of the brand moving into other lifestyle categories, including more high-margin accessories, beauty and fragrances. He said PPR also would help Puma develop its e-commerce business.
After several divestments for PPR, the deal potentially opens the door for other acquisitions following a period of concentrating on organic growth. Last year, PPR sold its Printemps department store chain to a pool of investors led by Italy's La Rinascente chairman Maurizio Borletti.
And with fewer high-quality luxury houses on the block, it also shows that luxury firms might start to cast a wider net. Pinault said PPR, which also runs the Fnac music chain and the Conforama furniture outlets, remained focused on organic growth, but that it would continue to eye acquisition opportunities that generate cash flow.
PPR said the deal would be subject to antitrust regulators. It is expected to close in early July.
PPR shares gained 3.17 percent to close at 133.03 euros, or $177.59, in trading on the Paris Bourse. News of the deal boosted Puma's share price, which spiked last week on rumors of the tie-up, 9.4 percent to close at 343.93 euros, or $459.15, on the Frankfurt Stock Exchange.
Some analysts said PPR's deal undervalued Puma and speculated a counteroffer was highly possible. Such a scenario potentially could send Puma's share price on an upward spiral and force PPR to sweeten its deal.
But Pinault said PPR's offer of 330 euros a share, which represented a premium of 24 percent of the one-month average share price as of April 3, was firm and would not change.
"There's a strong risk we'll see the stock price creep upward," predicted Christian Devismes, analyst with Natexis Bleichroeder in Paris.
Puma, founded in 1948, is one of the fastest-growing sport lifestyle brands, with 2.37 billion euros, or $3.16 billion, in sales last year. Still, Puma is dwarfed by its much-larger rivals, Nike, which has revenues of more than $15 billion, and Adidas, with annual sales of more than $13 billion.
Nonetheless, Puma has more than doubled its sales in the last five years as it branched out into more categories and put a greater emphasis on fashion. Much of that meteoric growth has been directed by 44-year-old Jochen Zeitz, Puma's chairman and ceo, who has focused on blurring the lines between style and sport ever since he became ceo of the sleepy athletic shoemaker in 1993 at age 30. While maintaining the brand's link to performance, the dynamic Zeitz rapidly ramped up Puma's fashion quotient, recognizing that the majority of activewear products are worn on the streets rather than on the courts or running tracks. Puma was among the first brands to introduce the thin-soled running shoes that have become fashion staples, and also to roll out archival designs as fashion looks.In recent years, Jil Sander, Philippe Starck, Marcel Wanders, McQueen and Barrett all have put their designer stamps on products for Puma. Last year, Marc Jacobs created a bag for Nuala, Puma's activewear line intended as a joint venture with model Christy Turlington. In December, Schedoni, the Italian leather manufacturer best known for designing custom-made luggage for Ferrari, created a line of bespoke leather sneakers.
And, during last New York Fashion Week, Puma tapped Lydia Hearst to create a limited edition Puma Lydia Bag by Heatherette, codesigned with Hearst's longtime friends Richie Rich and Traver Rains.
In the performance arena, Puma has gained traction through various high-profile sponsorships. Last year, for instance, it got massive attention by sponsoring the Italian national soccer team when it won the World Cup. Recently, the firm widened its offer to include gear for golf, motorcycling, swimming and sailing, and Puma even will sponsor a boat in next year's Volvo Ocean Race.
Pinault said Zeitz supported the deal and he would remain at the Puma helm, with a contract that runs through 2009.
The PPR ceo said he has known Zeitz since 2004, when the Puma chief was identified as a possible candidate to take the reins at Gucci Group. Unilever executive Robert Polet got the job. Pinault said the two men had remained in contact since, speaking about issues at Gucci and Puma, and that it was thanks to Zeitz that the present deal came to fruition.
"We are convinced that PPR's proposal is a unique opportunity to get additional long-term support to achieve our global targets and our mission to become the most desirable sport lifestyle company in the world," said Zeitz in a statement. "My colleagues and I have carefully considered this proposal and…we will recommend it to our shareholders."
Analysts said Puma represented a great opportunity for value creation by PPR and the brand fit PPR's strategy to expand internationally with high-visibility names.
"There probably are more opportunities for growth with Puma for PPR than there would be if PPR had purchased Hermès," said Devismes at Natexis Bleichroeder, who maintained his "buy" rating on PPR. "PPR has a good track record with acquisitions."
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