Fosun to Buy 35% Caruso Stake in China Lifestyle Push

Fosun International Ltd. (656), the investment arm of China’s biggest closely held industrial group, agreed to buy a stake in Raffaele Caruso SpA, an Italian maker of suits for companies including Christian Dior SA.

The purchase of 35 percent of Caruso through a capital increase will be completed this month, the clothier’s Chief Executive Officer Umberto Angeloni said in a Sept. 6 interview in Paris, declining to disclose financial details of the transaction. The closely held suitmaker will be rebranded Fabbrica Sartoriale Italiana and keep making luxury menswear under the Caruso label, he said.

Fosun, owned by Chinese billionaire Guo Guangchang, is investing overseas as it seeks to diversify its holdings, which include property, mining and drugs. The Shanghai-based company, which owns a stake in Greek duty-free store operator and jewelry maker Folli Follie (FFGRP), in July won approval from regulators to take over the French resort operator Club Mediterranee SA (CU) with Axa Private Equity. Caruso, based in Soragna, Italy, is its first foray into luxury menswear.

“I’m very interested in the lifestyle change of the Chinese population,” Patrick Zhong, Fosun’s head of global investments, said in a Sept. 8 phone interview from Shanghai. “I believe there is room for a contemporary luxury brand” and “Caruso fits well with the Chinese consumer and their tastes.”

Handmade Items

Caruso makes 1,500-euro ($1,988) suits and other apparel in Italy under its own brand and supplies fashion companies including Dior and Lanvin. Revenue reached 64.4 million euros in 2012, about twice Kepler Chevreux’s estimate for Berluti, a menswear brand owned by LVMH Moet Hennessy Louis Vuitton SA. (MC) Earnings before interest, tax, depreciation and amortization represented 9.6 percent of sales at Caruso last year.

Fosun’s investment will help the clothier boost production by 25 percent, particularly of handmade items, and open stores, Angeloni said. Caruso, which targets the “new, not nouveau, luxury consumer,” may sell shares to the public in about five years, said the CEO, who acquired control of the suitmaker in 2012 and delisted it from the Milan Stock Exchange this year.

The fashion and luxury-goods market is consolidating as financial investors seek to tap rising demand in fast-growing economies and large groups seek to benefit from scale. Buyouts such as Kering SA’s acquisition of jeweller Pomellato SpA in April and LVMH’s purchase of Loro Piana SpA in July will accelerate as smaller companies turn to buyers instead of lenders for capital, according to researcher Luxury Institute LLC.

No Logo

“Too bad Loro Piana was sold to LVMH,” Zhong said. Fosun has its eye on other luxury brands it may invest in, he said, declining to disclose possible targets or give a time frame.

While Fosun’s “sweet spot” for investment is between $100 million and $200 million -- more than what it’s paying for the Caruso stake -- it’s investing in the company because “it’s an unbelievable opportunity,” according to Zhong.

Chinese shoppers are starting to eschew products adorned with logos in favor of more refined and authentic alternatives, said Zhong. The so-called absolute luxury segment, which Caruso is targeting, is the fastest-growing part of the market and will continue to be until at least 2014, Bain & Co. predicts.

“The shape, the cut and the quality” of Caruso products is “very important for the post-label era,” Zhong said. “Caruso is really value for quality. I felt that it’s a very interesting value proposition.”

Chinese Door

Some industry buyers also courted Caruso, bringing prospects such as lower advertising rates and better store locations, but “the synergies which Fosun can bring the brand are far superior,” according to Angeloni. He wouldn’t name the other suitors.

Fosun is building two towers designed by architect Norman Foster in Shanghai and owns China’s biggest financial daily, the 21st Century Business Herald, as well as Forbes Asia, he said. The conglomerate’s clout and contacts make it “the key to open a Chinese door,” said Angeloni, who ran Italian suitmaker Brioni for more than 15 years.

Caruso’s first Chinese store will be located in Foster’s Shanghai Bund International Financial Centre in 2014. The company also plans to open a boutique in Milan as well as in cities such as Paris, London and New York, the CEO said.

“We will be presenting the international and Chinese luxury consumer with a brand that is more niche and a product that provides more value than is being offered today,” Angeloni said.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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