UPDATE 1-Italy fashion house Cavalli stake sale collapses

Tue Jul 8, 2008 10:36am EDT

(Recasts, adds details)

By Eleanor Wason/Jo Winterbottom

LONDON/MILAN, July 8 (Reuters) - Italian fashion house Roberto Cavalli's stake sale has been put on hold amid uncertain times for luxury goods, designer Roberto Cavalli and sources close to potential buyers said on Tuesday.

Cavalli told Italian business newspaper Il Sole 24 Ore he decided not to sell because prices have fallen during the financial market crisis.

Cavalli's setback does not bode well for rival luxury goods firms Prada and Ferragamo, both looking to sell shares to the public this year.

"We haven't reached the right moment yet for (a sale to private equity firms). At the same time, as I have said a thousand times, we don't need (to sell)," Cavalli said, in comments confirmed to Reuters by a spokeswoman.

Sources close to potential buyers said the credit crunch and signs of a slowdown in luxury goods spending had blunted private equity interest in the company.

"Everybody withdrew because trading was heading south during the sale process," one source familiar with the bidding said.

The auction initially drew an array of potential bidders, including buyout giants Blackstone [BG.UL] and TPG [TPG.UL], drawn by the company's potential in emerging markets.

But interested buyers struggled to secure financing and battled to lower Cavalli's price expectations, sources said.

A price tag valuing Cavalli at 1.4 billion euros ($2.20 billion) was mooted initially but international banks were reluctant to finance a deal when the debt from last year's buyout of fashion house Valentino had yet to be fully sold down, bankers said.

Cavalli told Il Sole 24 Ore figures discussed a year ago for his company "have vanished with the stock market crisis".

"I'm not discussing it again before 2009," he said.

Italian fashion industry association Altagamma last month warned that a difficult environment was about to get yet more challenging after the first quarter showed falling growth rates and declining margins.

Italian fashion companies, often still run by the founding family, are under pressure to bring in outside capital or management as competition mounts from major luxury conglomerates such as LVMH (LVMH.PA).

Sources told Reuters that private equity firms TPG, Candover and Doughty Hanson had withdrawn from the second round of an auction for Cavalli, which was set for mid-July.

Buyout firm Carlyle [CYL.UL], tipped in June as another bidder, declined to comment, as did Candover, TPG and Doughty Hanson.

Lion Capital, which two people close to the matter had said in June might also be interested in participating, also declined to comment.

A spokeswoman for Merrill Lynch, which was running the auction of the fashion house favoured by celebrities such as Victoria Beckham and Paris Hilton, also declined to comment.

Cavalli suggested he might approach Middle East investors directly: "They have lots and lots of money and they want me to put my look everywhere, from hotels to nightclubs. Why not?"

(Editing by Jason Neely)

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