By  on June 4, 2007

MILAN — Permira plans to launch a bid for control of all of Valentino Fashion Group after the Italian equity fund increased its stake in VFG to 53.6 percent. If successful, the acquisition will cost the fund about $3.5 billion.

Permira reached a deal Friday with the Marzotto family to take control of a further 24 percent stake of VFG, bringing the private equity fund's holding to 53.6 percent.

The new Red & Black Lux Sarl company controlled by Permira inked an agreement with Paolo Marzotto's PFC Srl and Veninvest financial vehicles to buy 10.83 percent of VFG and with Gaetano, Stefano, Nicolo and Luca Marzotto's Tidus vehicle for 12.4 percent of the group. The purchases were made at 35 euros, or $47.60, at current exchange, a share.

The fund had secured a reciprocal exclusivity agreement with the Marzotto family, which expired Friday.

Permira now will launch a cascading bid for outstanding shares of the group, which includes a stake in the German Hugo Boss AG, listed on the Frankfurt Stock Exchange, at the average price of the shares over the past three months. The offer is expected to be launched by July and be concluded by September. The Marzottos will remain minority shareholders in Red & Black Topco Sarl, a new Luxembourg-based company controlled by Permira, with a 25 percent stake at the most.

Late last month, Permira took control of 29.6 percent of VFG for 782.6 million euros, or $1.06 billion. At the offer price, the fund, which manages a capital of more than 21 billion euros, or $27.3 billion, will have to shell out an additional 1.82 billion euros, or $2.36 billion, for a total of 2.6 billion euros, or $3.5 billion, to buy all of VFG. Permira will rely on financing from Citigroup, Bayerische Hypo- und Vereinsbank and Mediobanca.

For the first time, Permira outlined why it wanted to acquire VFG, explaining in the statement Friday that it believes the group, "relying on a stable of brands that are well-known around the world, is one of the main players with the most potential in the luxury goods world." In addition, the statement underscored the skills of the group's management, "which will allow to reach ambitious development goals and to express an organic growth in all countries of the world."The latter statement confirmed a WWD report that there were not expected to be any major changes in VFG's management following a Permira acquisition. Stefano Sassi, who was chief executive officer of the textile group and sister company Marzotto SpA, was appointed ceo of VFG and its subsidiary fashion house Valentino SpA in December. Bruno Sälzer is ceo of Hugo Boss, which accounts for the bulk of the group's sales. VFG owns 50.9 percent of Hugo Boss, a $1.8 billion business, while Valentino reported sales of 239.5 million euros, or $369.6 million, last year.

Permira may also ask Matteo Marzotto, president of Valentino SpA, to stay on. Marzotto, the family's most public figure, sold his shares to Permira through one of the family's financial vehicles, International Capital Growth, last month. He is also considered to be a valuable liaison with Valentino himself.

The designer, who is busy preparing the Rome-based celebrations that will mark the 45th anniversary of his brand next month, has thus far declined to comment on the sale of the company that bears his name. This is the fourth change in ownership. Valentino sold his business to the now-defunct Holding di Partecipazioni Industriali in 1998, for $300 million. Textile and clothing manufacturer Marzotto bought the designer company in 2002 for $210 million, including Valentino's net debt of $179.2 million. In 2005, Marzotto spun off Valentino, a controlling stake in Hugo Boss and other clothing assets into the new Valentino Fashion Group, listing it on the Milan Stock Exchange.

The future of Antonio Favrin, chairman of VFG, who owns a 20 percent stake in the group through his financial vehicle Canova, remains uncertain. However, he is said to be estranged from the Marzottos as he teamed up with rival bidder, private equity fund Carlyle Group, in an attempt to take control of the group and oust the family.

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