By  on May 14, 2007

(Updated 1:38 P.M.) MILAN- The stock exchange here suspended trading in Valentino Fashion Group SpA shares for the entire session Monday pending an announcement of an unspecified nature.

As WWD reported today, Valentino FG chairman Antonio Favrin said Friday that the group had received offers from various "financial companies". Speculation about the possible sale of Valentino FG has been circulating for months. Reports have named private equity firms Carlyle and Permira as potential buyers.

A Valentino FG spokeswomen said the company has no plans to issue a statement and referred journalists to the company's individual shareholders.

A spokeswoman for Canova Partecipazioni Srl, Favrin's own investment company, said that the company may be issuing a statement this evening or Tuesday. Canova owns almost 20 percent of the company.

"We are negotiating," the Canova spokeswoman said, declining to elaborate further on the nature of the talks or the players involved.

A Borsa Italiana spokesman said that shares were also suspended for the afterhours trade session.

Valentino Fashion Group could be the next private equity target.

Antonio Favrin, chairman of the owner of Hugo Boss and Valentino, admitted at a shareholders' meeting Friday that the group had received offers from "financial companies interested in the luxury sector, which had contacted some of the main shareholders of the company."

Favrin stressed, though, that the offers "have not yet taken shape as any formal proposal."

This is the first time Favrin discussed the issue without dismissing the idea of a sale. For months, there has been speculation about a possible sale of VFG — heightened by the fact that designer Valentino Garavani, who turned 75 on Friday, is preparing his 45th-anniversary couture show in Rome in July.

The show has stirred talk Valentino might use the occasion to step down. Sources have said VFG had been searching for a replacement for the designer for at least two years, but had been unable to find anyone suitable to take up the reins of the house and its myriad collections.

A Milan source said Favrin and his own investment company, Canova Partecipazioni Srl, which controls 18.78 percent of Valentino Fashion Group, could be the most interested in attracting a potential buyer. There are two theories as to why. One is that Favrin and Canova would use the occasion to cash out of VFG and make a profit.Another possibility, sources said, is that Favrin and Canova would link up with a private equity partner to bid for VFG and oust the Marzotto family who, through their International Capital Growth (Luxembourg) s.a.r.l. vehicle, created earlier this year, control 29.93 percent of shares. Other Marzotto members control 12.43 percent of the group under their Tidus Srl umbrella. Favrin would then continue to run the group.

But banking sources said any acquisition of VFG would be expensive: The company has a market capitalization of $2.5 billion and earnings before interest, taxes, depreciation and allowances of $250 million.

The VFG chairman declined to elaborate on a possible sale and did not confirm whether it was Canova that was interested in such a deal. When asked directly whether he would be willing to sell, Favrin said: "I don't know."

What Favrin did say was that the group did not put itself on the block, but was approached by possible buyers. Italian press reports suggested that Carlyle Group, Permira, Apax Partners, Pai and Texas Pacific Group were potential suitors and one source said a private equity fund was a likely possibility. Another M&A source, who had no knowledge of a specific deal but knows the company and its players, said VFG would be a perfect fit for such investors as Change Capital, owner of Jil Sander, or the pan-European fund Merchant Equity Partners.

"Favrin is Machiavellian. He is aiming at turning the Marzottos out, and has no intention of leaving the group himself," noted the source. "He hopes the Marzottos will be tempted into selling, so that he can control the business with a financial company, which would have less knowledge of fashion than the Marzottos do," said the source, describing Favrin as "very shrewd, a cobra."

According to the source, Favrin and his partner in Canova, Dario Segre, are used to venturing into daring business operations and always making a profit. Another source said the extent of Favrin's independence from the Marzottos was measured by the choice he made in December to appoint Stefano Sassi chief executive officer of the group and not Matteo Marzotto, who remained chairman of the Valentino SpA division. Sassi was most recently ceo of textile group and sister company Marzotto SpA and replaced Michele Norsa as Valentino SpA's ceo. Norsa last year joined Salvatore Ferragamo SpA as its ceo.Matteo Marzotto was at the shareholders' meeting Friday and said he had no knowledge of any bid for VFG. He declined further comment.

Favrin denied there were any squabbles between shareholders. Favrin, a veteran of the Marzotto Group, blossomed under the management of patriarch and Italian industrialist Pietro Marzotto, who was himself pushed out of the company by a new shareholders' pact established by members of the family in 2003. Pietro Marzotto stepped down as president in 1998.

One variable remains the involvement of Valentino at the brand he created. When asked if the designer's expected retirement could affect the choice of a buyer, Sassi said that, while the strong contribution of the designer was undeniable, it would be "limiting to measure the strength of the group on one person."

One source contended it would be "understandable for a fund to wait until there is no creative director in order to put in its own designer, free from any preexisting tie with a strong name."

The lion's share of VFG's sales comes from Hugo Boss AG, despite the consistent growth of the Valentino brand. VFG owns Valentino SpA, a majority stake in Hugo Boss AG and men's wear brand Lebole, and holds licensing deals for M Missoni and Marlboro Classics. In March, VFG posted year-end revenues of 1.96 billion euros, or $2.46 billion, a 13.6 percent increase compared with the previous year. The rise was attributed to a direct-retail strategy and the launch of product extensions.

Hugo Boss remained the group's cash cow, with sales of 1.5 billion euros, or $1.8 billion, a 14.2 percent increase compared with 2005. Sales at Valentino, based in Rome, rose 14.5 percent last year, to 239.5 million euros, or $301.7 million. Marlboro Classics and M Missoni reported combined sales of 293.3 million euros, or $369.6 million, a 10.1 percent increase. Dollar figures have been converted from the euro at average exchange rates.

During the shareholders' meeting, the group reported its first-quarter financial results. VFG had a 17.1 percent increase in net profits, to 48.6 million euros, or $64.5 million at current exchange rate, compared with the same period last year, on sales of 637.7 million euros, or $860.3 million, an 8.4 percent hike compared with 2006. The company attributed the growth to a 12 percent increase in sales at Hugo Boss and a 10 percent increase in sales at Marlboro Classics, at constant exchange rates. Valentino sales grew 5 percent."These are encouraging figures, which show a quick development of markets and sales," said Favrin. When one shareholder questioned the extent of Valentino's growth, Sassi said the "brand still has not expressed its full potential, and that sales had almost doubled since the acquisition. We have to create the conditions for an even greater development in each company."

Geographically, the U.S. showed an 18 percent growth, while sales in Europe and Asia grew 10 and 9 percent, respectively, at constant exchange rate.

Operating profit grew 14.4 percent, to 117.8 million euros, or $158.9 million, attributed to the growth of all brands in the stable.

"The performance of the first months of 2007, the amount of the fall-winter orders and the growth of direct retailing allow a growth of between 8 and 10 percent, at constant exchange rates, with an improvement of operating profits and pretax results more than proportional to the growth of revenues," said Favrin.

At the end of March, the group's debt stood at 344.7 million euros, or $465 million, compared with 310.1 million, or $390.7 million, in the same period the previous year.

Some highlights of 2006 underscored by management included sales at the Valentino couture division that rose 25 percent and shoes and accessories growing 34 percent, accounting for 20 percent of sales.

In 2005, Marzotto spun off Valentino, a controlling stake in Hugo Boss and other clothing assets into the new Valentino Fashion Group, listed on the Milan Stock Exchange. This marked the third change in ownership of the Valentino brand since 1998, when the designer and his business partner Giancarlo Giammetti sold the company to the now-defunct Holding di Partecipazioni Industriali for $233 million. Valentino languished in the red under HdP, which also owned the once-mighty GFT manufacturing company, and Marzotto bought the designer company in 2002 for $210 million (including Valentino's net debt of $179.2 million).

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