DELLA VALLE GIVES IPO DETAILS

Byline: Samantha Conti

MILAN — Diego Della Valle, brimming with self-confidence and armed with one of the highest multiples in the luxury goods business, kicked off the road show for his footwear and accessories group’s, Tod’s SpA, initial public offering here on Wednesday.
As reported, Della Valle previously announced plans to seek an IPO on the Italian bourse by the end of the year.
Della Valle plans to list some 7,562,500 shares, or 25 percent, of Tod’s, on the Italian bourse. An additional 687,500 shares — or 2.27 percent of the company — could eventually be listed in the event that the original offering is oversubscribed. Approximately 1,945,000 shares will begin trading on the bourse by Nov. 6. The remainder of the listed shares have been reserved for institutional investors.
“We need to build the muscle to compete in the luxury goods market, and the time was right to seek a listing,” said Della Valle, the chairman and managing director of Tod’s, during a press conference here. “We belong in the same league as the two or three other big luxury players, and that means we need resources to help us grow.”
The Della Valle family will control the remaining 75 percent stake through a holding company, of which Diego is the majority shareholder with 59.5 percent of shares.
Analysts crowded into the Hotel Principe di Savoia Wednesday morning to listen to his presentation. From Milan, the road show will travel to cities including Dublin, New York and Frankfurt. Tod’s sponsors are UniCredit Banca Mobiliare SpA and Merrill Lynch International. Those banks have valued Tod’s at $1 billion to $1.3 billion and calculated its value-to-sales ratio to be between 5.23 and 6.87. Della Valle and his bankers must reveal the maximum price for the shares by Oct. 28. The figure should be in the neighborhood of $53.
All figures are calculated at the current rate of exchange.
The range of possibilities for the Tod’s ratio is within the range of Gucci’s (5.8), Hermes’ (5.99) and LVMH Moet Hennessy Louis Vuitton’s (5.74). The benchmark ratio for the luxury business — at least in Italy — is Bulgari, which boasts a ratio of 7.82.
Tod’s ratio is based, financial analysts say, on the company’s growth potential, its profit record and the strength of the brand. “This is also one company that has been talked up a lot in the financial community. I’m not surprised at the ratio,” said one London-based analyst.
Indeed, growth at Tod’s — the new name for Della Valle’s holding company Ema Srl and the name of his most vital brand — has been impressive. According to the prospectus, Della Valle’s sales grew 17 percent to $193.4 million last year, with net profits making up about 10 percent of sales. In 1998, sales grew 24 percent to $165.7 million, with profits again constituting 10 percent of sales. In the first half of this year, sales have grown 14 percent to $102 million. Della Valle said costs would be higher in 2000, due to an increase in the advertising budget — which now represents 12 percent of sales — and investments in store renovations.
In the first half, net earnings amounted to 5 percent of sales. “Costs will reach a high this year, but our philosophy is spend now — and reap the benefits later,” Della Valle said. Earlier this year, before he announced the IPO, Della Valle said sales would rise 16 percent to $227.3 million in 2000. He declined to provide updated figures for 2000.
Della Valle said the money from the IPO would be used to “rapidly expand” the retail networks of the Tod’s, Hogan and Fay brands, and added that there were plans to open about 50 boutiques in Europe, Asia and the U.S. in the short to medium term. Della Valle directly operates 33 Tod’s, 10 Hogan and one Fay unit in those markets. In addition to those stores, there are 17 Tod’s and 14 Hogan franchises. There are also 25 Tod’s in-store shops at Neiman Marcus, 23 at Saks Fifth Avenue, two at Bergdorf Goodman and one at Barneys New York.
Among the U.S. speciality stores, Neiman Marcus was clearly the top earner last year, generating $6.3 million in annual sales, followed by Saks with $4.8 million, and Bergdorf’s with $1.82 million.
The IPO money also will be put toward acquisitions in the accessories sector. “If we happen to come upon some nice, interesting companies, then we’ll definitely be in a position to buy,” Della Valle said.
It’s no secret that Della Valle is itching to expand his business via acquisitions. As reported, he purchased the vast archives and rights to the legendary French shoe company Roger Vivier with an eye to resuscitating that brand. Last year, he was locked in a bidding war for the English company Church & Co. — a war he eventually lost when Prada chief Patrizio Bertelli bought the firm for $172 million in cash, about 27 times Church’s 1998 net profits.
According to the Tod’s prospectus, Della Valle is also planning to expand the product range of all three lines, moving into the fragrance, eyewear and clothing segments.
Later this month, Tod’s will launch a luggage line, which will be available in Tod’s stores in December and at multibrand retailers in the spring. The prospectus also says that studies regarding the development of an eyewear line “were in their advanced stages,” and that the company was mulling the launch of a cosmetics and “specialized clothing” line under the Tod’s name.
There are also plans for a Hogan eyewear line and clothing collection in the medium term, and the company plans to expand the Hogan handbags and accessories line. As for Fay, the outerwear line currently not sold in the U.S., the company plans to develop a line of small leather goods consistent with Fay’s rugged, but stylish, image.
Tod’s is the company’s biggest revenue producer, generating 63.4 percent of sales, followed by Hogan (28 percent) and Fay (8 percent). “Other sales” accounted for the remaining 0.6 percent. Italy is Della Valle’s biggest market, representing 48.2 percent of sales, followed by the remainder of Europe (32.7 percent), North America (14.1 percent) and the rest of the world (5 percent).
Della Valle, whose first big hit was the Tod’s pebble-sole car shoe, had been talking about a public listing for years. His choice to go public is the latest in a string of moves aimed at transforming the small shoe company founded by his grandfather at the turn of the last century into a luxury group.
As a teenager, Della Valle dreamed of transforming the family business — which by the time he reached his teens was a prosperous company making private label collections for Saks Fifth Avenue and Neiman Marcus — into a name the public would recognize.
When he was 21, during the designer boom of the Seventies, the Della Valle family factories were turning out shoes for Calvin Klein, Geoffrey Beene, Gianfranco Ferre, Azzedine Alaia and Claude Montana’s runway shows. “It opened my eyes to the world of fashion,” Della Valle says. By the end of the decade, he was on to his next project — transforming the family business into a luxury brand.
Della Valle is famous for his marketing skills, and considers celebrities his greatest vehicles for advertising. When he wants to test a new product, he sends it to style icons — Marella and Gianni Agnelli, Catherine Deneuve and others — and waits to see how the press reacts. Della Valle credits his celebrity pal, the dashing and much-photographed Ferrari president Luca de Montezemolo, for catapulting his pebble-sole car shoes to fame.

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