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Burberry’s Shares Valued at Discount

LONDON -- Call Rose Marie Bravo the $20 million woman.<P>That's the amount the Burberry chief executive officer could make over the next few years under the terms of her new contract and the company's upcoming initial public offering. The agreement...

LONDON — Call Rose Marie Bravo the $20 million woman.

That’s the amount the Burberry chief executive officer could make over the next few years under the terms of her new contract and the company’s upcoming initial public offering. The agreement makes Bravo the highest paid female executive of a publicly quoted company in the U.K., and one of the highest paid executives in the fashion industry worldwide.

But John Peace, ceo of Burberry’s parent GUS PLC and nonexecutive chairman of Burberry, made it clear that Bravo is worth every penny. After all, the company wouldn’t even be preparing for its IPO if it weren’t for Bravo, who has led a major turnaround at the classic British brand over the last five years.

Burberry kicked off the road show for its IPO on Monday, with news of double-digit retail sales growth — and the promise of a discounted share price when trading begins July 12. Bravo and chief financial officer Mike Metcalf spoke to journalists at a sleek presentation — color coordinated in Burberry’s signature red, black and tan — at the Millennium Hotel here.

Burberry’s price range is $3.45 to $4.35 per share, which values the company at $1.73 billion to $2.2 billion. The shares will be selling at 13.8 to 17.4 times earnings, compared with the luxury sector average of 20 times earnings. All figures are converted from the British pound at current exchange rates. Burberry plans to issue 112.4 million new shares, while 16.9 million shares will be a “greenshoe” held in reserve, in case the original ones are oversubscribed.

The Burberry price is at the low end of analysts’ expectations, which originally expected the IPO to value Burberry at about $2.3 billion. But the flotation comes against the background of continued weakness in the luxury sector, with Gucci last week reporting a 42.2 percent drop in first-quarter net profits and Prada revealing its earnings before interest, taxes, depreciation and amortization dropped 51 percent in the first quarter. Sources close to Prada said the company plans to push forward with its IPO on July 1, with trading due to begin the week of July 15. A news conference in Milan to discuss the details of the IPO is tentatively scheduled for July 3.

The timing means Prada will trail Burberry which, as reported, plans to float up to 25 percent of share capital, with parent GUS holding on to approximately 75 percent. If the share price falls in the middle of the price range, Burberry can expect to raise $422.7 million. As reported, the proceeds from the IPO will be used to pay off money borrowed from GUS, leaving Burberry with a net cash balance of about $15 million. The plan is for GUS to invest further in Burberry’s retail expansion plan.

Bravo remains key to that expansion. Under her new contract, which kicked in on May 28, 2002, and runs through June 30, 2005, the former Saks Fifth Avenue executive will get 1 percent of the company’s share capital, or about $17.3 million — and that’s if Burberry is valued at the low end of the scale. She can cash in the shares only after three years. Bravo also gets 0.5 percent of company equity in the form of stock options. Each option gives her the right to buy shares at the IPO price, although further details of when the options can be exercised were not provided.

Bravo’s base salary is $1.5 million. If she achieves her targets, her bonus will range from 50 to 100 percent of the salary, according to the company’s prospectus. In addition to a driver, car and clothing allowance, Bravo gets a free London apartment and country club membership.

Peace defended Bravo’s pay package. “She is worth every penny,” he told reporters, who grilled him repeatedly about Bravo’s pay. “We looked at Gucci and at Hermes, and we knew we had to put together a package that would attract a global, international executive. When her contract ends in 2005, we’ll do what we have to do to retain her for a further period.”

Bravo and the rest of the management team start their sales campaign today in London and then move on to Paris, Milan and the U.S. As reported, the sale will be made to institutional investors only.

The team will focus on Burberry’s growth spurt — and growth potential. Over the past two years, sales have more than doubled to $750 million. Net profits — a figure that GUS has not revealed until now — have more than tripled over the past two years to $84.8 million.

“Burberry is not a mature business, but a growing business,” said Peace, adding that retail sales saw double-digit growth in the first 11 weeks of the current fiscal year, excluding the benefit of the Asian acquisitions that were completed in January.

“And the investors like the idea that it’s a single-brand company. Investors today like focus, clear strategies and a clear fiscal opportunity,” he added.”