LVMH GETS CONTROL OF FENDI
PARIS — Having purchased Prada Group’s 25.5 percent stake in Fendi, it is now up to LVMH Moet Hennessy Louis Vuitton as majority owner to steer the Roman fashion house at a difficult time for luxury.
“We have all the elements to do it,” Yves Carcelle, president of LVMH’s fashion and leather goods business group, told WWD on Sunday. “We have achieved many strategic objectives together. Now we have to run it.”
Following intense negotiations in Italy last week, the two luxury groups reached a final agreement Saturday morning. WWD first reported that LVMH was interested in gaining complete control of the house on Sept. 13. At the time, negotiations had been progressing, but were derailed in the wake of the terrorist attacks on America.
Sources said Prada chief Patrizio Bertelli will walk away with about $260 million from the transaction, representing roughly 7 percent more than the $242 million he paid for the stake in October 1999. However, the amount is slated to paid over four years, with $35 million paid immediately, $158 million by April and the balance in three installments of about $22 million in December 2003, December 2004 and December 2005.
A Prada spokeswoman confirmed those numbers. Dollar figures are converted from euros at current exchange.
Carcelle said the purchase price does not represent a capital gain for Prada.
“Because it’s paid over four years, the real value — if you take into account the interest on the money — is exactly the purchase price,” he said. “This represents really taking control with no control premium. In any case, it’s a good deal for both parties.”
The battle to buy Fendi goes down as one of the most dramatic bidding wars in fashion history. The bitter struggle among rival groups Gucci, Prada and LVMH drove the price to an unprecedented 33 times Fendi’s bottom line. Prada and LVMH paid an estimated $485 million for a joint 51 percent stake in Fendi.
The Fendi transaction brings in some much-needed cash for Prada Group, which is carrying $1.16 billion in debt.
Carcelle made it clear Sunday that Prada’s financial situation in the wake of its postponed IPO was a key impetus for the deal.
Industry observers have long said it would make more sense for one luxury group to be in the driver’s seat, especially since Fendi has lost momentum since demand for the once red-hot “baguette” handbag has cooled.
Additionally, sources said Fendi has been hindered by delivery problems and clashes on the creative side, which is under the control of Karl Lagerfeld and Sylvia Venturini Fendi.
But in parting ways, the two partners trumpeted some of their achievements with Fendi over the past 18 months. Fendi now has direct control over two-thirds of brand sales, up from less than a quarter when Prada and LVMH bought the joint stake. This was achieved by increasing the number of company-owned stores to 83 from four.
Carcelle said Bertelli would stay on as chief executive of Fendi until the transaction is final and LVMH completes a new management plan in consultation with the five Fendi sisters, who maintain a 49 percent stake.
In a statement, Bertelli said, “This transaction gives Prada the financial wherewithal to strengthen its development strategy focusing on brands in which it owns either all, or a majority of the share capital.”
Besides Prada and Miu Miu, Prada Group also owns Jil Sander, Helmut Lang, Genny, Byblos, Carshoe, Azzedine Alaia and Church’s.
“This decision has been made in the vein of friendly cooperation, which has always typified our relations with LVMH,” Bertelli added.
Cooperation between the rivals stems back to 1999, during the height of LVMH’s takeover attempt of Gucci. At the time, Bertelli sold LVMH his 9.5 percent stake in the Italian company, and brought home what he termed “a nice capital gain” of $140 million on the Gucci stake.
Meanwhile, Prada is expected to announce next week a bond issue valued at $616 million, which will also help bring down its debt.
As reported in WWD, Prada had been studying various bond options with its banks, and the company appears to have settled on Deutsche Bank. Final details are still being hammered out.
Prada could also bolster its cash position by selling off subsidiaries. Bertelli has insisted he has no intention of doing so, but sources said he is aggressively shopping Helmut Lang and could sell Jil Sander and its nascent beauty business, as reported.