MILAN — The third time apparently wasn’t a charm for Prada.

This story first appeared in the June 27, 2002 issue of WWD. Subscribe Today.

In a last-minute move rivaling the drama of a runway show, Prada Group has pulled the plug on its long-awaited initial public offering — for the third time — just days before its road show was to have begun, amid declining market conditions that include the massive accounting scandal at WorldCom. The troubled market had already pushed Prada’s valuation down.

Prada met with bankers Wednesday and decided the financial markets are far worse than “any reasonable forecast” they had made in April, when Prada had decided to go public. On Wednesday, European markets closed generally lower.

Among European indices, Italy’s MIBTel was down 1.2 percent, France’s CAC 40 down 1.7 percent, Germany’s DAX down 2.5 percent and the U.K.’s FTSE 100 down 2.2 percent. U.S. markets rebounded late in the day, dropping the Dow Jones Industrial Average just 0.1 percent, to 9,120.11 after falling below 9,000 briefly in midday trading.

“When the markets stabilize, we will evaluate bringing ourselves to the market,” said Prada chief financial officer Riccardo Stilli. He declined to predict when that might be, adding, “It doesn’t depend on us.”

All systems appeared to be on track as recently as Tuesday night, when Prada announced that it had snagged Luciano Benetton and Spanish beauty mogul Manuel Puig for its board. That move was engineered to lure investors with a more independent board reaching beyond the Prada family and internal executives.

It was a “total shock,” said one source close to Prada. “Everything was planned to the last detail,” she said, noting that a sales force presentation to the banks selling the shares was already slated for today.

But everything changed Wednesday. A meeting with BNP Paribas, Deutsche Bank, IntesaBCI and Morgan Stanley appears to have made Prada chief executive Patrizio Bertelli’s worst nightmare come true: an even lower price tag on an IPO that was already headed for the bargain bin in a depressed market.

“We believe that current market conditions do not fully value relevant and continual growth of our brands and our products in the whole world,” said Bertelli and Miuccia Prada in a statement.

Analysts said market valuations of Prada at $2.94 billion to $3.93 billion — already marked down from earlier estimates ranging as high as $5 billion — were simply too pricey for a company turning around money-losing units like Helmut Lang and Jil Sander in a luxury goods market that isn’t seen rebounding until at least next year.

(Dollar figures are converted from euros at current exchange rates, which pegged the euro at 98 cents late Wednesday.)

“They don’t want to undersell,” said Andrea Paladini, an analyst at Centrosim here.

Meanwhile, the British luxury firm Burberry, in the thick of its own road show for an IPO, is proceeding as planned, said a spokesman. Analysts noted that Burberry is a more “straightforward story” and lacks Prada’s burden of unprofitable units.

Prada’s IPO story required too much of a “belief in a recovery next year,” noted one leading luxury analyst, who said she had heard negative feedback from the potential investors with whom she had contact. She said she valued Prada at about $2.46 billion.

Other observers echoed that sentiment.

“Objectively, it is not the ideal moment to do an IPO, above all for a company like Prada,” said one analyst.The overall feeling a while ago was for a strong rebound in the market in the second half of the year. Now, even that is in doubt. Now we are thinking 2003.”

Prada’s cancellation also raises questions over how the multibrand luxury group will confront its debt. Sales of Fendi and Byblos helped cut its net debt by about 20 percent; currently the figure stands at about $785.8 million, compared with about $982.2 million at the end of 2001, according to one source close to the company.

Analysts said the debt problem isn’t an emergency requiring urgent action, but some did warn that Prada could find itself strapped for cash if it waits too long before venturing to market.

“They should have enough cash flow to pay their financial costs,” said one analyst. But he noted that money could become tighter as time wears on. “With debts of almost 1 billion euros, it will be difficult for them to use cash to pay their interest and also [invest] in the brands they acquired.”

Some analysts speculated that Prada might strike a deal for more financing from the banks that were hired to coordinate the IPO, but Stilli denied that Prada has formed any sort of agreement. He claims the company’s debt situation is under control, thanks to the recent asset sales of the Fendi and Byblos stakes and noted that Prada has issued $687.5 million in bonds that can be converted into shares if and when the company goes public. The bonds mature in 2005.

Elsewhere, one analyst highlighted investor concern about a variety of issues such as the transparency of Prada’s accounting practices and the temperament of the strong-willed Bertelli.

Stilli countered that Prada’s accounting practices are among the most stringent in the industry.

Several analysts pointed to Prada’s disappointing first-quarter results, which made selling an IPO that much more difficult in the quarter, earnings before interest and taxes dropped 61 percent to $29.1 million from $74.5 million, while net sales fell 15.4 percent to $401.08 million from $474.7 million.””

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