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Prada IPO May Raise as Much as $2.6 Billion

Prada SpA’s initial public offering in Hong Kong may raise as much as HK$20.3 billion ($2.6 billion) to fund the opening of more stores by the Italian maker of Miu Miu bags.

The Milan-based luxury-goods company and Intesa Sanpaolo SA are selling 423.3 million shares for HK$36.50 to HK$48 each, according to the IPO prospectus distributed to reporters in Hong Kong yesterday. Selling shares at the top of the range may give the company a market value of as much as HK$122.8 billion, according to the document and data compiled by Bloomberg.

That would give President Miuccia Prada and her husband, Chief Executive Officer Patrizio Bertelli, a stake in the company worth at least $8.8 billion. They could also receive at least $1.4 billion through the IPO. The sale approaches as other companies have struggled to obtain top valuations in Hong Kong amid the Hang Seng Index’s worst monthly slump in a year.

The market decline could make it difficult for Prada to close the deal at the top of its pricing range, OSK Securities and Aberdeen Asset Management said. “It’s natural they may get into the same trouble” as Samsonite International SA, which priced at the low end of a revised range, said Peter Elston, a strategist at Aberdeen Asset Management in Singapore. “This is not something that is specific to luxury brands, it is a problem that all companies face.”

Coach, Samsonite

Prada’s share sale may be double that of Chinese shoe retailer Belle International Holdings Ltd., which at $1.3 billion is the largest for consumer-goods companies in Hong Kong, according to data compiled by Bloomberg.

Elston said Aberdeen, which didn’t invest in Samsonite, is deciding whether to buy Prada shares.

Samsonite on Friday priced its initial public offering at $HK9.73 billion, the low-end of a recently revised range. Bagmaker Coach Inc. also plans to list shares in Hong Kong to capitalize on demand for luxury products in China.

Mainland China, which doesn’t include Hong Kong, Macau or Taiwan, will remain the fastest-growing market for high-end goods in 2011 as sales rise 25 percent to 11.5 billion euros ($16.6 billion), Bain & Co. said May 3. The country may become the world’s third-largest luxury market in five years, the consulting company predicted.

New Stores

About two thirds of the net proceeds from the initial public offering will be used to finance the expansion of Prada’s directly operated stores, the prospectus said.

Over the next three years the company plans to open about 80 outlets annually, of which as many 12 will be in China and about 25 in Asia, Deputy Chairman Carlo Mazzi said at a briefing yesterday in Hong Kong.

“We are less penetrated than our competition in China,” he said, noting that its Church shoes brand had no retail stores in the mainland. He said the company plans to expand to Northern Europe, where it has no retail outlets as well as other unexploited markets in the Middle East and Latin America.

China accounted for 19 percent of global sales as of Jan. 31, up from 10 percent three years ago, said Alessandra Cozzani, group investor relations director.

Prada had 319 directly operated stores, of which 18 were in China, on Jan. 31, compared with 211 three years earlier, the prospectus said.

Pricing, Debut

Revenue from its stores accounted for 71 percent of Prada’s sales for the year ended Jan. 31, Cozzani said.

The IPO values Prada at as much as 28 times 2011 profit as estimated by banks arranging the sale, a person with knowledge of the matter said June 6. Six comparable luxury-goods companies worldwide, including Burberry Group Plc (BRBY), recently traded at an average 21.1 times forecast full-year earnings, according to a May 20 research note from Goldman Sachs Group Inc.

Aberdeen’s Elston described the price to earnings valuation as “expensive for an Italian luxury brand.”

“It is certainly at a level where we feel uncomfortable,” he said. “Although the issues relating to the long-term are sound, there are also risks that relate to these sorts of companies.”

Pricing, Debut

Prada, which will have about 2.6 billion shares after the IPO, will have a market value of HK$122.8 billion if it prices at the high end of the range. That is more than 70 percent bigger than that of Burberry.

Prada’s shares will be priced on June 17 and will start trading on Hong Kong’s stock exchange on June 24, the prospectus said.

The maker of Church’s shoes has forecast first-half profit growth of at least 46 percent as it opens more stores in Asia.

Profit more than doubled to 250.8 million euros last year on growth in the Asia-Pacific region, where sales jumped 63 percent. Revenue rose 31 percent to 2.05 billion euros.

Hong Kong, where companies raised $58 billion in IPOs in 2010, has fallen below the U.S. in first-time share sales this year. Resourcehouse Ltd., Australian billionaire Clive Palmer’s iron ore and coal company, on June 4 dropped its fourth attempt in two years to sell stock in Hong Kong, citing adverse global market conditions.

Prada Family Stake

MGM China Holdings Ltd., the Macau casino venture part owned by Pansy Ho, is the only $1 billion-plus IPO in Hong Kong since late October to sell shares at the top end of its marketed price range, data compiled by Bloomberg show. MGM’s shares are down 5.2% since the June 3 offer, the data show.

Hong Kong stocks fell for the eighth day today, with the Hang Seng Index down 0.8 percent to 22,245.98 as of the 12 p.m. trading break. The measure has dropped 4.4 percent over the past four weeks.

Assuming a full over-allotment of shares a company controlled by the Prada family would own 80 percent of the company, down from the 94.9 percent stake it now holds.

Intesa Sanpaolo SpA is reducing its stake from 5.1 percent to 1 percent and will not be affected by the overallotment option.

The company sells clothing and accessories under the Prada, Miu Miu, Church’s and Car Shoe brands.

Intesa Sanpaolo, Credit Agricole SA (ACA) unit CLSA Asia-Pacific Markets, Goldman Sachs Group Inc. and UniCredit SpA are managing the IPO, along with Mizuho Financial Group Inc. and Industrial & Commercial Bank of China Ltd., the prospectus shows.