THE FOCUS IS ON FENDI NOW THAT BERTELLI HAS SANDER IN HIS POCKET
Byline: Samantha Conti / with contributions from Melissa Drier, Berlin / Sarah Raper, Paris / Miles Socha, New York
MILAN — Now that he’s won Jil Sander, is Prada’s Patrizio Bertelli ready to capture Fendi?
Just one day after Prada disclosed plans to take control of Jil Sander AG, creating Italy’s largest privately held luxury goods group, industry sources here said Bertelli, the chief executive of Prada Holding BV and an owner of the company, may have already taken a 9.5 percent stake in Fendi.
Since June, rumors have been circulating that Bertelli, along with a slew of others, including the leveraged buyout fund Texas Pacific Group, Bulgari, Gucci, and LVMH Moet Hennessey Louis Vuitton, was interested in buying all, or part of, Fendi. TPG, Gucci and Bulgari have all declined to comment on the rumors. LVMH denies having an interest in Fendi.
A London-based analyst who asked not to be named said Fendi, which is not officially up for sale, could eventually be sold piecemeal, with the accessories, apparel and fur businesses all going to different owners.
“Pricewise, it might make more sense to divide the business into its separate divisions,” the analyst said.
That theory reflects the mood inside the Rome-based fashion house, which is privately owned and managed by the five Fendi sisters, their husbands and family members. Industry sources say decisions at Fendi take a long time to make and that the sisters are still divided regarding an eventual sale.
Carlo Pambianco, owner of a consulting firm here, said Bertelli could have purchased the Fendi stake in a speculative move. “It’s clear that Fendi will be sold to someone in the future, so maybe Bertelli’s reported investment is speculation on a potential sale,” he said.
On Tuesday, Bertelli was in Hamburg, Germany, hammering out the details of the Jil Sander acquisition, and was unavailable for comment. Fendi, as usual, declined to comment on the rumors regarding its sale.
Italian press reports speculated that representatives from Texas Pacific Group, which announced yesterday that it had purchased Bally, would be meeting members of the Fendi family to discuss an eventual acquisition. However, sources in the U.S. described a TPG buyout of Fendi as a long shot. In June, industry sources told WWD that TPG was conducting due diligence on Fendi, and that the company would be willing to pay upward of $440 million for the Rome-based fashion house.
A TPG spokeswoman said the company had no comment.
Meanwhile, Sander, who is back at work in her studio finishing her spring-summer 2000 collection, told WWD she considered Prada a fashion soul mate. “Jil Sander and Prada share a common understanding of fashion,” she said. “Both are driven by the objective to design and market contemporary fashion.”
She said she sold to Prada because the company had “knowledge and experience in the Jil Sander business — for sure, I did not want to sell to a buyer who was solely motivated by financial objectives.”
Both Sander and Bertelli refused to disclose the price of the deal, although some industry sources say Bertelli paid approximately $105.6 million for the business.
As reported, Bertelli purchased 15 percent of Jil Sander AG’s bourse-traded, non-voting preference shares, which had a closing price Monday of approximately $317. In the key part of the deal, Bertelli bought 75 percent of the designer’s ordinary, voting shares, which give him control of the company.
Because the ordinary, voting shares were privately held by Sander and not traded on the Frankfurt stock exchange, it is impossible to tell how much they actually cost. Analysts estimate, however, that based on the reported price of the sale, Bertelli probably paid about three times the market value of the shares traded in Frankfurt.
Jil Sander AG’s stocks closed at $325.50 on Tuesday, up $10.05 from the day before.
On Tuesday the company announced its first-half results: sales increased 4.1 percent and lifted its pretax profits 23.5 percent to $3.78 million. Dollar figures are translated from the euro at current exchange.
Prada, meanwhile, announced that sales in the first seven months of the year rose to $540 million from $377 million during the same period last year. Dollar figures are translated from the Italian lira at current exchange. During that period, sales in the U.S. grew 55 percent thanks to new store openings, the company said.
Sander, a workaholic who until now oversaw every detail of the business from finances to hiring staff to designing her four collections per year, told WWD she was looking forward to focusing on the creative part of the business.
“Designing the collections has always been the main part of my daily work,” she said. “I am happy to be able now to concentrate mainly on this.”
Industry observers in Europe applauded the acquisition, saying it would strengthen both companies.
Paul Gordon, an equities analyst with IMI in Milan, said Prada would most likely plump up Sander’s less than spectacular operating margins of 6.8 percent. Operating margins — the measuring stick of a company’s profitability — at Prada are nearly 18 percent. “Prada will surely try to increase Jil Sander’s margins and make the company more profitable overall,” he said.
The new group will also increase Prada’s bargaining power and presence in the market. “They will gain in terms of increased retail visibility and economies of scale,” said Cristophe Mollet, a Paris-based consultant for fashion companies. “It’s just like Hermes’s purchase of Jean Paul Gaultier.”
Paolo Buzzonetti, a consumer goods consultant for A.T. Kearney in Milan, said Prada will now have powerful commercial critical mass. “The companies within the Prada Group can share agents, showrooms, delivery, logistics and distribution facilities. This means that in the end Prada and its companies will sell more of everything. They will penetrate the market very, very deeply,” Buzzonetti said.
Prada will also have the twin advantages of boosting growth and remaining in the high end of the market. “That’s not easy to do: many high-end companies are forced to go downmarket if they want to grow,” said Armando Branchini, the vice president of InterCorporate, a luxury goods consultancy here.
“I think forming a luxury goods group is a necessity for any leading brand: You need to buy other brands in the high end of the market if you want to grow and stay in that segment,” he said, adding that when top brands unite, their different products compensate for one another during the ups and downs in the different markets.
Andrea Ciccoli, a consultant for Bain, Cuneo & Associati here, said the trend toward consolidation is good for the luxury goods companies, but potentially bad for manufacturers. “I think Prada’s recent move sends two messages to the market: The first is that the party is over for manufacturing companies that live off designer clothing licenses. If companies like Prada start buying other companies — and controlling their own means of production — there will no longer be a need for licenses.
“The second message is that fashion entrepreneurs can challenge the big financial investors like banks, or conglomerates like Italy’s Holding di Partecipazioni Industriali [HdP], and compete with them for acquisitions….It was clear that Jil Sander was courted by everyone: financial investors, banks and fashion companies. In the end, she chose a fashion company.”
American retailers were also forecasting a good marriage.
“If in fact the lines are independent in terms of design and strategy, it’s good,” said Allen Questrom, chairman and ceo of Barneys New York. “If they start to influence each other, you lose what a designer should be. We certainly don’t need more of the same in the marketplace.”
Asked if he was concerned that Bertelli might roll out a larger network of Jil Sander stores, given the Italian executive’s preference for direct distribution, Questrom questioned that strategy.
“The customer more and more today wants to have a choice of many things,” he said. “The customers don’t want to be head-to-toe in anything. What we’re seeing is customers want a piece of Jil Sander, a piece of Prada, a piece of Dolce & Gabbana, a piece of YSL.”
“We think it’s going to be a terrific synergy,” said Joan Kaner, senior vice president and fashion director at Neiman Marcus. “We’re doing very well with both companies.”
Kaner said that Sander has a lot to gain in accessing Prada’s expertise with handbags and footwear. “They’re both very strong categories now and going forward, and so this would be a good way for her to expand another level of her business,” she said.
“It’s a merging of two brilliant worlds,” agreed Janet Brown, owner of a specialty store in Port Washington, N.Y. “I think these are two very, very strong forces that together can form one of the great partnerships in the world of fashion….I think that Jil will have an extraordinary influence on Mr. Bertelli and Mr. Bertelli’s brilliance in accessories will expand the Jil Sander world.”
The retailers balked at the notion that the consolidation of fashion houses into fewer hands would have a negative impact.
Linda Dresner, owner of stores in New York and Birmingham, Mich., noted that Bertelli and Sander are both from closely held companies and “they understand what that hands-on kind of leadership means.
“Being an owner of my own small business, I realize there are all sorts of responsibilities that need to be done that are perhaps more taxing and prevent the creative part from happening as easily as we’d like,” Dresner said. “This will give Jil the time to focus on what she does best, being creative and being close to her product.”