BERTELLI SETS BID FOR CHURCH & CO.

Byline: Samantha Conti

MILAN — First Helmut Lang, then Jil Sander and now, with barely a pause for breath, Patrizio Bertelli has revealed plans to add another luxury name to his fast-growing stable: Church & Co.
Just a week after taking control of Jil Sander AG, Prada’s brand-hungry chief issued a joint statement with Church on Thursday, saying he planned to offer $172 million for one of the U.K.’s best-known footwear brands.
“Should our offer be successful, it is my firm intention to maintain and possibly strengthen the British identity of Church by preserving and developing its industrial presence in Northampton, and by enhancing the role of the management team,” Bertelli said in the statement. “Prada will make its know-how and resources available to Church, in particular to improve and increase the efficiency of distribution around the world.”
Bertelli’s cash bid, at $15.40 per share — 68 percent higher than Church’s average closing, middle-market price in the past three months — has the support of shareholders holding 33 percent of the stock.
The stock has been trading higher than that in recent days, however, as speculation mounted about a possible takeover. On the London exchange Thursday, Church closed at $15.63, down from $16.04. Dollar figures are at current exchange.
“The full potential of Church, particularly overseas, will be realized more effectively with the support of a strong luxury goods partner. Prada is committed to developing the Church brand,” said company chairman John Church.
As reported (WWD, Aug. 18), Church revealed several months ago that it had held talks with an unidentified bidder earlier this year.
The statement added that Bertelli’s offer was unanimously recommended to shareholders by the Church board. There is still time left, however, for a counter- offer, and it might come right from Bertelli’s backyard. Since last month, Bertelli has been battling with J.P. Tods owner Diego Della Valle, who raised his stake in Church to 8.64 percent right after Bertelli announced he had bought an 8.5 percent chunk of the English company.
Bertelli already holds 9 percent of Church, or 995,000 shares, worth an estimated $15.6 million.
Della Valle declined to comment on Bertelli’s takeover bid. Earlier this week, however, he said he was mulling the launch of a full bid for Church — but wasn’t prepared to pay too high a price.
“We didn’t buy the shares so that we could resell them, but because we have a plan for the English company. That said, we’re not going to pay some crazy price for Church, whose latest results, in my opinion, were disappointing,” Della Valle said.
Church, which also owns the brands Joseph Cheaney & Sons, Ellens and Jones, had net profits of $6.4 million on sales of $130.6 million in 1998. This compares with net profits of $6.3 million on sales of $129.3 million a year earlier.
Some sources here said if Bertelli’s bid were successful, and Della Valle decides to sell his stake, he could stand to make a “substantial” capital gain, although it is unclear how much he spent on his shares. Others said Della Valle wouldn’t give up so easily: “Della Valle is not the kind of man who just steps aside and lets his rival have his way,” said one source. “My feeling is that he will try to make Bertelli’s life difficult.”
Under U.K. securities regulations, Della Valle, and any other potential bidders, have about 20 days to offer a counterbid.
Church, founded in 1873, is probably best known for supplying classic brogues to British gentleman, including Pierce Brosnan’s James Bond. Most of the company’s footwear is for men, and though it carries a lot of cachet, it doesn’t generate as much cash as it could. Production costs are high and the brand name is underdeveloped, according to Andrea Ciccoli, a consultant for Bain, Cuneo & Associati here. It also has a tiny accessories business.
“Bertelli probably views Church as an industrial opportunity: He can reduce costs, launch new models and retool the company’s style,” Ciccoli said.
Cedric Magnelia, an equities analyst with Credit Suisse First Boston in London, said Church would be a smart, long-term investment for Bertelli.
“Prada’s structure generates free cash, which needs to be used, so buying a company like Church is part of a natural need to invest and grow,” Magnelia said. “Plus the synergies are all there for the raw materials and sourcing, distribution and production.”
For his latest and future acquisitions, Bertelli can tap a steady flow of cash. As reported, Prada is expecting revenue this year to reach $909 million — almost all of which will come from direct sales. In addition, the company raised $137.2 million from a bond issue last year, and Bertelli walked away with $140 million in capital gains from selling his 9.5 percent stake in Gucci to Bernard Arnault.
Cash isn’t Prada’s only source of power. “Prada has credibility in the market; it can easily leverage its value as a company and raise capital with a variety of different partners,” said Ciccoli of Bain. “The market knows that Prada has value, and that it can take on debt. Often, that’s more important than having cash in hand.”

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