MILAN — For Prada, minimalism is out at Helmut Lang.
Prada has agreed to increase its stake in the brand’s holding company, Helmut Lang S.à.r.l., to 100 percent by buying the Austrian-born designer’s 49 percent share. Prada bought 51 percent of Lang in 1999. Helmut Lang will continue in his role as creative director.
“Taking complete control of the Helmut Lang Group is a clear demonstration of how strongly we believe in the potential of the brand,” Prada chief executive officer Patrizio Bertelli said in a statement. “We have enjoyed a solid relationship with Helmut over the past several years and look forward to continuing our fruitful collaboration in the years to come.”
Financial terms of the deal were not released.
Prada executives made no other comments on the deal. Sources in Milan said the designer was heavily indebted to Prada and did not have the funds necessary to foot his share of a badly needed recapitalization of Helmut Lang S.à.r.l. Doing so would have allowed him to retain his 49 percent stake of the company that owns the rights to his name.
While some sources acknowledged that owning 100 percent of the business could make it easier for Prada to one day sell the brand, they stressed that finding a buyer would be tricky in today’s market. In any case, Prada has to invest and develop Lang’s business since a healthier Helmut Lang means a stronger component of Prada’s balance sheet. Prada has repeatedly denied speculation that it wants to sell the company.
“The brand’s development was on standby because Lang’s stake was blocking the possibility to make investments,” said one source familiar with Prada and its subsidiaries.
Lang, who will show his spring-summer 2005 collection in Paris on Wednesday, declined to comment beyond his one-line statement in the Prada release: “I am pleased with this development and look forward to continuing my role as creative director.”
Sources indicated the sale of the 49 percent stake had been under discussions since the end of last year, so the deal is not a sudden transaction.
One source close to Bertelli said Prada most likely obligated Lang to ink a long-term contract as collateral for the deal to recapitalize the fashion house. Prada is no doubt eager to avoid a repeat of the situation at another Prada subsidiary, Jil Sander, in which the designer left her namesake label and it floundered until her return a year ago. Her once acrimonious relationship with Bertelli appears to have improved and the two are now working together to grow her business.
Word has it that Prada may use its new leverage over the Helmut Lang business to develop more affordable products, such as a diffusion collection or a relaunched jeans line.
Prada has said that it’s still trying to reposition Helmut Lang and has therefore shuttered some unsatisfactory wholesale accounts. A Prada spokesman said that closing those accounts, along with macroeconomic factors such as a strong euro, SARS and the Iraq war, hurt Helmut Lang’s most recent sales figures.
In its 2003 balance sheet, Prada said Helmut Lang sales showed the biggest drop of the group’s brands, falling 33.1 percent to 27.85 million euros, or $34.53 million. Clothing accounted for 77 percent of sales, with footwear and leather goods — product categories that have been developed with Prada — comprising 17.4 percent and 4.8 percent of the business, respectively. (Dollar figures have been converted from the euro at current exchange.)
And retailers often cite good sell-throughs for the collection.
“It’s certainly a collection for us that has a cult following with our customers. He does what he does even if it isn’t necessarily in sync with the rest of fashion,” said Anna Garner, head of fashion at Selfridges. “But it’s a very reliable collection that our customers come back to whether it’s a more androgynous season or not. The men’s wear is very strong and the women’s has been up and down, but we’re enjoying a good season for the women’s wear now.”
Prada bought a majority stake in Lang’s business in 1999, as the luxury goods M&A market peaked. At the time of the deal, sources estimated the wholesale volume of all of Lang’s products was close to $100 million in 1998. Lang told WWD in 1999 that he teamed up with Prada to focus more on the creative side of the business. “For me, I think it is a good development. It is the structure which is necessary at the moment,” he said.
Analysts said they don’t have enough financial information to value the Helmut Lang business, as Prada does not break down operating profits or debts by brand. But it seems unlikely that Prada made a significant outlay to buy the residual Lang stake because the Italian company has been concentrating on reducing its debts. Prada has said it wants to carry out a thrice-postponed initial offer sometime before June of next year. That’s when 700 million euros, or $867.79 million, worth of bonds are due.
Prada amassed its debts in buying not just Helmut Lang and Jil Sander but also brands such as Azzedine Alaïa, Genny, Car Shoe and Church’s, the latter of which it sold control of to Swiss firm Equinox. Prada’s net debt at the end of 2003 stood at 675 million euros, or $836.80 million.
— With contributions from Miles Socha and Robert Murphy, Paris