PPR (PP) SA, the owner of Gucci and Puma, ruled out making big acquisitions and repeated it will target mid-sized companies with high-growth potential as it reorganizes around luxury goods, sports and lifestyle items.
PPR’s purchase of Volcom Inc. last month for $607.5 million is indicative of the size of deals PPR is interested in, PPR spokeswoman Charlotte Judet said today, repeating comments made by Chief Executive Officer Francois-Henri Pinault. She commented after a French newspaper reported the company was planning a large purchase and cited Prada SpA, Burberry Group Plc (BRBY) and Hugo Boss AG (BOS) as possible targets.
“When it comes to other market segments we will have the same type of logic, trying to aim for small or mid-sized companies with potential for growth,” Pinault said May 3 after PPR announced the Volcom purchase. PPR, which is seeking to add to its jewelry portfolio, isn’t in talks with any other targets, Pinault said at the time.
PPR is reorganizing to focus on its luxury-goods division, which includes Gucci, and a sports and lifestyle unit headed by Puma as it seeks to tap rising demand for branded clothing and accessories in Asia and Latin America. The company, which sold furniture retailer Conforama in March, plans also to dispose of online retailer Redcats and the Fnac electronics and media chain and use some of the proceeds for acquisitions.
Making a large acquisition “isn’t in their interest,” said Fabio Fazzari, an analyst at Equita Sim in Milan. PPR “would have to pay a lot to buy a large company without any particular problems or divisions to reorganize,” he said, adding that he sees the company being more likely to buy a luxury or lifestyle brand with more potential for turnaround.
No acquisition will exceed PPR’s 5.3 billion-euro ($7.8 billion) bid for sporting-goods maker Puma AG in 2007, Pinault said in February. PPR ruled out making an offer for Burberry in December, saying it did not match the company’s selection criteria for its luxury portfolio. Pinault also ruled out investing in Hermes International SCA in February, saying it was too big.
PPR has started work on the sale of Redcats, which is slated for the second half of 2011, and has hired Rothschild & Cie. to arrange so-called staple financing, two people with knowledge of the matter said last month. PPR’s remaining retail activities have a value of 3.8 billion euros, analysts at CA Cheuvreux, including Jurgen Kolb, estimated today in a note.
PPR will use some of the proceeds from the disposals to pay down debt, which was 3.78 billion euros at the end of 2010, Pinault has said. Thomas Chauvet, an analyst at Citigroup in London, expects PPR to cut that to 2.4 billion euros in 2011. Pinault has said he doesn’t want debt to exceed two times earnings before interest, tax, depreciation and amortization, the level at which it hovered at the end of last year.
PPR’s 42 percent stake in CFAO, the African distribution company it spun off in December 2009, is a “quality holding,” the CEO said at a shareholder meeting last month.
PPR shares fell 80 cents, or 0.7 percent, to 116.60 euros, giving the company a market value of 14.8 billion euros. Burberry, known for its plaid prints, rose as much as 3.7 percent and traded 1 percent higher at 1,320 pence as of 2:03 p.m. in London. Hugo Boss, which is controlled by Permira Advisers LLP, rose as much as 2.6 percent and traded 1.1 percent higher at 61.97 euros at 3:05 p.m. local time.
Prada, which is planning an initial public offering in Hong Kong this month, yesterday received bids for all of the shares on offer for the sale on its first day of order taking.
A spokesman for Prada did not immediately return calls and an email seeking comment. Jenna Littler, a spokeswoman for Burberry, and Noemie de Andia, a spokeswoman for Permira, declined to comment.
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