UNGARO'S NEW MARRIAGE

Byline: Katherine Weisman, With contributions from Sara Forden and Samantha Conti, Milan.

PARIS--Emanuel Ungaro is now a minority partner in the house he built, and he's thrilled.
Last week, the houses of Ferragamo and Ungaro announced that Ferragamo had acquired a majority stake in the French couture house. The acquisition price was not disclosed, though reliable sources have put it at $30 million to $35 million.
"I am particularly happy," Ungaro said in an interview Friday between fittings for the couture collection he presents today. "It's really more a question of culture than of economics. We are two companies with similar family histories." And the modest designer, who was the sole owner of the company and now has a substantial minority stake, insisted he won't change his ways with all this new cash in the bank.
"I'll still drive the same Mini Morris which I have had for 15 years. And I'm not going to buy a boat, if you know what I mean," he laughed.
As part of his deal with Ferragamo, Ungaro signed a contract to stay on with his house until at least 2004. "Thus I am required to work. But as long as I want to work, I will," he said.
Though there have been rumors as long as two years ago that Ungaro was considering selling his company, the designer stressed the similar cultures of the companies--especially the fact that they are family businesses that started from nothing--as being a key factor in his decision.
"Ferragamo is a house of tradition that began in a way that I feel close to. It started off artisanal, followed by incredible expansion and then this mother--what a genius!" Ungaro declared, referring to the Ferragamo matriarch, Wanda, the widow of founder Salvatore Ferragamo.
"We share the same values. My savoir faire is complementary to theirs. Putting two different expertises together leads to a better result." (In a potential second step to this transaction, the Ferragamos are said to be negotiating with Chanel to buy back the license for Ungaro's perfume business, which Chanel has held since 1975. A Chanel spokeswoman declined to comment.)
Ungaro founded his couture house in 1965 with Sonia Knapp, whom he later bought out. Although self-financed until now, he acknowledged that the Ferragamos, who are one of Italy's richest fashion families and are said to have enormous cash reserves, would be better able to finance future growth.
"I am aware of the big groups like LVMH, HermAs or Chanel," Ungaro noted. "These are huge financial powers with lots of means. I cannot really compete by myself in this situation." Ungaro said. He added, however, that the decision to sell the majority stake in his couture house wasn't an easy one.
"It was very difficult from both an objective and sentimental perspective," he noted. "It was a decision that took a long time. I did not and do not want to change the house. And I did not know the Ferragamos personally. But, like Sartre said, once I thought about it, the decision had already been made."
The deal comes at a crucial time in Ungaro's development. The house is a month away from launching the first part of a major new collection concept, Emanuel Ungaro Universe, which regroups all of the house's lines.
Solo Donna, the existing designer diffusion line will be replaced this spring by the Emanuel Ungaro Collection and classifications like knitwear, swimwear and blouses. Eventually, an active sportswear line will be added.
These lines are all positioned price-wise below the ParallAle designer rtw line and above the Emanuel bridge line. Emanuel, a smash success in the U.S., has recently seen distribution expanded to Japan, and is being tested in other non-American markets including the U.K., where it will be launched in a small number of House of Fraser stores. Ferruccio Ferragamo, the 50-year-old chief executive of the family fashion company, said in Florence last week that he sees the Ungaro acquisition as a strategic move that will benefit both businesses without creating conflicts of interest.
"We reached the decision because we see a lot of complementary ground between ourselves and Ungaro," Ferragamo said. "Our capacities fit well together, both in terms of knowhow and type of business. For example, in our business, we don't do anything with licenses, whereas Ungaro does just about everything under license except the haute couture."
Although he did not rule out future acquisitions, Ferragamo stated, "Our goal is not to become a huge conglomerate. We want to keep the business in perspective."
Ferragamo declined to reveal the stake his family has taken in Ungaro or the purchase price, but he did deny rumors that the figure was around $40 million. He also said that Ferragamo has no plans to seek a stock market listing and insisted the house wants to remain independent.
While the Ferragamo/Ungaro alliance may not break any records in the fashion business, it will create a new international design powerhouse. Ferragamo's consolidated sales were $425 million last year. Ungaro's consolidated sales in 1995 were $26.4 million, consisting mostly of royalties from fashion and perfume as well as sales from Ungaro-owned retail operations.
Worldwide, at retail, the Ungaro label generated sales of $600 million last year, according to the company.
"We've been offered a number of opportunities by people who told us they would increase our market quota, but we're not interested in just increasing market quota," Ferragamo said, stressing that his group's interest in Ungaro lay in the complementary activities the couture house could provide. He noted that Ungaro's strength is in apparel while Ferragamo's lies in leather accessories and footwear.
"I don't think we are speaking to the same clientele," he said. "And perhaps our respective knowhow can help each other develop in markets where we aren't already present." In a separate interview, Giovanna Gentile Ferragamo, who oversees the Ferragamo ready-to-wear division, said that the Ungaro deal won't affect expansion plans for the Ferragamo apparel business. "In terms of apparel, there is a lot of room to grow for both of us," she said.
Ferruccio Ferragamo reiterated that the two businesses would remain distinct and retain their own executives and identities, comparing the move to the Marzotto group's acquisition of Hugo Boss several years ago.
"We were looking for a way to complete our business, and we found it with Ungaro," Ferragamo said, adding that aside from the business aspects of the deal, an excellent rapport has developed between the Ferragamo family and Laura and Emanuel Ungaro.
Ferragamo further added that there weren't any major plans to install new management or change Ungaro's strategic orientation at the moment. "The structure [of the Ungaro business] is valid. We are very pleased that the founder and designer himself will stay on as president and creative director," he said. "There is no need to change course, because we agree with their strategy completely."
According to Carlo Valerio, Ungaro managing director, the investment necessary to develop the Universe collection, as well as enormous future marketing and advertising expenses, encouraged the house of Ungaro to seek a partnership.
But rather than going public, or trying to pitch the house to investment bankers, he and Ungaro decided to seek a strategic partner. The fact that Ferragamo was looking for potential investments led to the two companies meeting and finalizing a deal.
"From a historical and cultural point of view, the two companies are very similar," Valerio observed. "Both Salvatore Ferragamo and Emanuel started from nothing--the original shoe shop and the tailor store." He agreed with Ferragamo that the houses are complementary and can share each other's respective knowhow. "For example, in Japan, Ferragamo is very big, and we are small," Valerio explained. "Together we could make an even bigger impact. "Instead of going to a business consultant, we can now go to Ferragamo when we need information, and vice-versa."
For the moment, there is no talk of combining production or distribution operations. Observers of the deal have wondered if Ferragamo might start producing handbags for Ungaro, for example.
Valerio said that if there is interest in the future to exploit potential synergies, the two houses would only do it if it makes business sense. The houses are adamant about keeping their businesses independent, Valerio stressed.
Ungaro's dealings with Gruppo GFT, the licensee for Ungaro's apparel collections, are unchanged, added Valerio. Royalties will continue to flow directly to Ungaro, he noted.
As for Emanuel Ungaro Universe, also produced by GFT, international buyers will be shown the first collection in August. The Universe collection is aimed at a broader audience than the current Solo Donna line, which will be phased out after this fall. It is designed to offer retailers a new concept, complete with logos, display and tickets based on the letter "U" instead of just marketing a designer diffusion line, explained Valerio.
He estimated Ungaro spent $800,000 to develop the Universe concept and will spend at least another half-million dollars in advertising for its launch.
While Ungaro may have more work on his hands with these developments, the designer is looking forward to this next phase for his house.
"I have the vanity to believe that our products are high quality, but they were underexploited," Ungaro observed. "But this will be the spine of our business activity. It's a step we have to take to go forward, a step towards modernity."

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