MILAN — To sell or not to sell?
This story first appeared in the November 21, 2014 issue of WWD. Subscribe Today.
That is one of the questions casting a cloud over the sale of a majority stake in the Roberto Cavalli group to VTB Capital, a transaction that has been taking months to materialize. The deal is still on the table, but the parties have yet to come to an agreement, according to a market source.
Reached by WWD, a wistful Cavalli expressed concerns about his future and that of his brand. “It has been difficult to understand the real intentions of these strange buyers, and I have decided that if you take away the pleasure of creating, I would grow old,” said the designer, implying that total control of the brand remains a priority, one that would perhaps have been compromised with the sale.
“I would have wanted so much attention on Cavalli,” he added, blaming Ittierre’s bankruptcy for “very much complicating the continuation of my company.” The Italian manufacturer was Just Cavalli’s licensee, but was put under government-backed bankruptcy protection in 2009. The line is now produced by Staff International.
“I have grand projects in mind — this is also the reason that pushes me to wait, to be confident of a sure thing with sure partners,” concluded Cavalli.
One source said the parties are “still negotiating and fine-tuning the details” and that “another kind of agreement could be reached,” pointing to glitches in the original contract. It is understood that Cavalli has already pocketed a portion of the sum earmarked by VTB and that some form of contract has already been signed. “It’s a very delicate situation, and they have not arrived at a final decision,” continued the source.
According to another source, VTB is pulling back to negotiate a new price, which Cavalli is reluctant to accept. “The financial investors that were expected to fund the acquisition did not come through, and the Italian banks that were supposed to pitch in were cut off,” said the source, referring to the international sanctions on Moscow for its role in the Ukraine crisis. VTB Capital is part of VTB Group, a major Russian investment bank, but it’s understood that it is acting for a Cyprus-based fund.
“This, on top of a lackluster performance of the brand,” added the source, noting that VTB is trying to recast the deal to avoid paying legal penalties.
The deal was expected to be completed in mid-October and then pushed back to November. As reported, the Italian designer has signed a letter of intent to sell a 60 percent stake in his company to VTB, with the eventual goal of launching an initial public offering in four to five years, according to sources.
The price tag was pegged at 500 million euros, or $626.7 million at current exchange. The deal values the Cavalli brand at 830 million euros, or $1.04 billion. This amount represents four times the firm’s sales in 2013 and more than 22 times its earnings before interest, taxes, depreciation and amortization last year. In 2013, the Florence-based firm reported sales of 201 million euros, or $265.3 million at average exchange, up 9.3 percent compared with the previous year. Net profit last year dropped to 159,000 euros, or $209,880 at average exchange, from 359,000 euros, or $459,520, in 2012. EBITDA last year totaled 22.4 million euros, or $29.5 million. The company has not reported results for the first half of 2014.
At the end of 2012, the company had 179 stores, of which 90 were under the designer’s signature brand. Of these, 44 are directly owned, including Cavalli’s prestigious Rue du Faubourg Saint-Honoré boutique. If the designer retains ownership of the Paris shop, as is rumored, the deal’s final price may eventually be clipped.
The value of the company has been a thorny issue for years, and the designer is said to have backed out of previous negotiations over price. A deal to sell a 30 percent stake to private equity firm Clessidra SGR SpA broke down in 2009 for that reason. At the time, sources said Cavalli was looking to sell for 1 billion euros, or $1.25 billion. Talks with private equity fund Permira cooled earlier this year, possibly triggering the sudden departure in January of Cavalli chief executive officer Gianluca Brozzetti and chief operating officer Carlo Di Biagio.
In 2006, Cavalli seemed close to a deal with Saudi Arabian private equity fund SAB Capital, which submitted a bid for 60 percent of his business, but the designer pulled out of the talks. During this round of negotiations, Permira was willing to pay 450 million euros, or $591 million, for the group, sources said — a price tag Cavalli rejected. Permira recently made an offer for the entire company, but an agreement was never reached because VTB outbid the Italian fund. Bahrain-based Investcorp, the former owner of Gucci and Saks Fifth Avenue, was also said to be looking at Cavalli in the latest round of sale negotiations.