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Prada Shuns Milan for Hong Kong as IPO Signals Economic Shift

Prada Holding NV CEO Patrizio Bertelli
Patrizio Bertelli chief executive officer of Prada Holding NV. Photographer: Vittorio Zunino Celotto/Getty Images

Prada SpA, the fashion house known for its Miu Miu bags and Church’s shoes, is planning the largest initial public offering of a family-owned Italian company since 2006. Investors in Prada’s hometown of Milan will have to reach about 5,800 miles away to buy the stock.

Prada is shunning the Italian exchange for a $2 billion IPO on the Hong Kong exchange because it’s closer to the retailer’s fastest-growing region. The decision was made to “seize the best opportunities offered by the international capital markets,” Chief Executive Officer Patrizio Bertelli said in a statement when it announced the IPO.

Losing Prada highlights the struggles facing Borsa Italiana, a unit of London Stock Exchange Group Plc, to gain new listings, said investors, including Lorenzo Crispoltoni of Banca Fideuram SpA. The Italian exchange lost half its value in the past three years amid a dearth of IPOs and the drop in stock prices since 2007. The 332 traded companies on Borsa Italiana have a combined market capitalization of 425 billion euros ($593 billion), ranking the exchange no higher than seventh in Europe, data from the World Federation of Exchanges show.

“The Borsa’s troubles mirror sluggish economic growth and an exchange that isn’t as visible as others on a global scale,” said Milan-based Crispoltoni, who helps oversee 2.5 billion euros. “Companies that have a global market are looking elsewhere for success.”

Slow Growth

Economic growth of just 1.1 percent last year combined with the region’s sovereign debt crisis to erase 13 percent from the country’s benchmark FTSE MIB Index in 2010. Italian shares are now the cheapest relative to Europe, the U.S. and the emerging markets on a price-to-book value basis since 1992, according to London-based Barclays Plc. The country is Barclays’s preferred “deep-value” play, analysts led by Edmund Shing wrote in a note to clients March 2.

Italy’s gross domestic product grew at an average annual rate of 1.5 percent from 1999 to 2007, compared with 2.2 percent for the European Union. Italy contracted 5.4 percent in 2009.

The economy and weak stock market have deterred Italian companies, especially small ones, from going public, said Gioacchino Attanzio, chief executive officer of Milan-based Aidaf, a group that represents family-owned companies.

“We’re in a paralysis,” he said. “Entrepreneurs are more worried than ever about losing control because their businesses are weak.”

Pulled IPOs

Italian biotechnology company Philogen SpA postponed a 65 million-euro IPO last month after Bayer AG, its biggest customer, canceled contracts. Toymaker Giochi Preziosi SpA, ferry operator Moby SpA and Intesa Sanpaolo SpA’s Banca Fideuram asset-management unit also have scrapped plans for share sales.

Enel Green Power SpA sold 2.5 billion euros of stock in November, the country’s largest IPO in 11 years.

Prada is making its fifth attempt in the past decade at selling shares. The company, controlled by Bertelli, his wife Miuccia Prada and her family, is generating record sales.

Revenue grew 31 percent last year to 2.05 billion euros led by demand in Asia, where sales rose 48 percent. Credit Agricole SA, Goldman Sachs Group Inc., Intesa Sanpaolo SpA and UniCredit SpA are helping manage the company’s Hong Kong IPO, Prada said in a Jan. 28 statement.

‘Water to Fashion’

“From water to fashion to industry, you have leading Italian brands that are household names in the world,” Ronald Arculli, chairman of Hong Kong Exchanges & Clearing Ltd., said in an interview in October while visiting Italy to meet company executives. “A listing in Hong Kong would automatically enhance their brand recognition.”

Borsa Italiana envisioned in 2007 when it was sold to the LSE that the London connection would help lure more companies to the exchange, which at the time of the combination identified 2,000 companies as potential IPO candidates. The number of companies traded in Milan fell to 332 last year from 344 in 2007.

The exchange needs to offer “better terms” to companies considering IPOs, Borsa Italiana Chief Executive Officer Raffaele Jerusalmi said in a parliamentary hearing on March 2. Borsa Italiana officials declined to be interviewed for this article.

Lagging Asia

Italy isn’t the only market that’s trailing Asia for IPOs. Initial sales in Hong Kong raised $49.5 billion in 2010, the most in developing markets, compared with $28.4 billion in western Europe, data compiled by Bloomberg show. L’Occitane International SA and its parent raised about $780 million from the first Hong Kong IPO of a French company last year.

Borsa Italiana’s difficulties coincide with a wave of consolidation with LSE bidding $3.15 billion for Toronto Stock Exchange owner TMX Group Inc. Deutsche Boerse AG and NYSE Euronext disclosed last month that they plan to merge.

The Italian Exchange drew criticism from some market operators when a data feed broke down on Jan. 22 and shut down Borsa Italiana for 6 1/2 hours just as violence in Libya sent global markets tumbling. The LSE stopped trading on Feb. 25 after a technical fault.

Luxury sportswear maker Moncler, whose biggest shareholder is Carlyle Group, is planning what may be the biggest Italian IPO this year. Moncler’s sales increased 15 percent last year to about 440 million euros.

“If Italy was growing at 3 or 4 percent, the IPO market would be buoyant,” said Aidaf’s Attanzio. “It’s a situation that will have to change.”

-- With assistance from Zijing Wu and Nandini Sukumar in London and Andrew Roberts in Paris. Editors: Dan Liefgreen, David Merritt

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