Bloomberg News

PPR Said to Plan Piecemeal Redcats Sale Due to Financing

July 17, 2012

PPR SA (PP) plans to sell Redcats in pieces after failing to secure a buyer for all of the online retailer, according to two people with knowledge of the matter.

A challenging debt market has made Redcats too expensive for bidders to buy in one block, said the people, who asked not to be named as the plans aren’t public. PPR will divide the apparel and home-furnishing retailer along geographic lines, trying to sell separately the U.S., Scandinavian and European businesses as well as the Vertbaudet and Cyrillus brands, another person said. At least one part may be sold by the end of this year, the person said.

“The disposal process for Redcats is going on” said Paul Michon, a spokesman for PPR. “As for any other disposal by PPR, we will choose the option that is in the best interest of all stakeholders, of Redcats and of PPR.”

In 2010, Paris-based PPR announced plans to sell Redcats and other retail assets to focus on luxury, sports and lifestyle brands, which it has since said may help double sales to 24 billion euros ($29.2 billion) by 2020. After selling the Conforama furniture chain last year, PPR postponed an auction of Redcats in September, saying the sovereign debt crisis had made it harder for buyout firms to borrow.

Raising Expectations

PPR, also owner of the Gucci brand, raised expectations that a deal would come this year after deconsolidating Redcats from its 2011 accounts in January. While the company has been able to dispose of other businesses for a premium, the delay in the sale process is penalizing its shares, according to HSBC analyst Antoine Belge. The situation doesn’t limit PPR’s ability to make acquisitions, provided it maintains its guidance on dealmaking, he said.

PPR’s purchase last year of surf-and-skatewear brand Volcom Inc. for $607.5 million is indicative of the size of deals the company is interested in, Chief Executive Officer Francois-Henri Pinault has said. PPR confirmed last week that it is in discussions to buy a Chinese luxury company.

The delay in selling Redcats means PPR may get less than it hoped for the business as a whole. Belge estimates the division’s total value at 949 million euros. Before the auction was suspended last year, PPR valued it at as much as 2 billion euros, people with knowledge of the matter said at the time.

‘Best Interest’

After Pinault ruled out a break-up of Redcats in February, Deputy CEO Jean-Francois Palus said in April that the company would find a solution that was in the “best interest” of PPR and its shareholders. “We are talking with potential acquirers and things are progressing quite well,” Palus said April 25.

The interested parties are mainly private equity funds, Pinault said in February.

PPR trades at a discount to luxury rivals such as LVMH Moet Hennessy Louis Vuitton SA (MC) and Cie. Financiere Richemont SA (CFR) because Redcats and the Fnac media and electronics chain that it also plans to sell are less profitable and have weaker growth prospects. PPR’s estimated price-to-earnings ratio for this year is 11.6 times. The ratio of the Bloomberg European Fashion Index is 18 times.

PPR’s shares have fallen 1.4 percent this year. LVMH, the world’s largest maker of luxury goods, has advanced 8.8 percent.

‘Piece by Piece’

PPR has already started breaking up Redcats. An affiliate of Philadelphia-based Versa Capital Management LLC acquired the Avenue plus-sized women’s clothing stores in the U.S. in April. Redcats also completed the sale of the Somewhere apparel brand to management the same month.

La Redoute is Redcats’s largest business, accounting for about a third of its 3.05 billion euros of sales last year. The unit, which sold its first mail-order catalog in 1928 in France, offers items ranging from 13.79-euro leggings to 399.99-euro microwaves in more than 20 countries.

“It’s easier to split it,” said Leopold Authie, an analyst at Oddo & Cie. in Paris, referring to Redcats. “The most probable scenario is that PPR will sell it piece by piece.”

To contact the reporters on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net; Anne-Sylvaine Chassany in London at achassany@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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