5 Min Read
* Deal would value Brioni equity at 12 times EBITDA
* Sale process still informal
* PPR Redcats sale process also close
(Adds valuation detail, background)
By Christian Plumb and Astrid Wendlandt
PARIS, July 27 (Reuters) - French luxury goods and retail group PPR is considering buying family-owned Italian tailor Brioni for about 350 million euros ($508.4 million), two sources familiar with the situation said on Wednesday.
The deal, if it goes ahead, would allow PPR to make further progress on its pledge to get out of retail and make luxury and sports brands its central focus.
As part of that strategy, PPR, which owns Gucci and controls Puma , is also moving closer to a sale of catalogue retailer Redcats, sources with first hand knowledge of the matter told Reuters.
PPR on Wednesday declined to comment while no-one at Brioni returned calls.
PPR sold furniture retailer Conforama last year and after Redcats it will be looking to offload retail arm Fnac as well.
Recently, PPR acquired U.S. sports brand Volcom and bought control of Swiss watchmaker Sowind Group, of which it already owned 23 percent, giving it brands Girard-Perregaux and JeanRichard.
One of the sources said there were talks underway on a possible sale of Brioni, while the other source was more cautious, describing the Italian brand as an asset PPR had long been eyeing but adding a takeover was "far from a done deal".
"PPR is always looking, always discussing," the second source said, describing a 350 million euro price tag as one that "makes sense in terms of the multiples".
"That it moves to a concrete deal is not always the case," the second source added.
"It's a little bit divided within PPR what to do with it," the source said, adding that it was "something they are monitoring for a long time".
Earlier on Wednesday, Italian daily Corriere della Sera reported that PPR executives were in Italy "for a few days" to perform due diligence on Brioni, which is famous for designing James Bond's suits.
The newspaper said Brioni's 2010 revenue reached 190 million euros, with earnings before interest, taxes, depreciation and amortisation (EBITDA) around 25 percent of that.
Corriere did not cite a price for the company.
Foreign bids have been a sensitive issue in Italy after jewellery group Bulgari was bought by French group LVMH this year. French dairy group Lactalis also sealed a takeover of Parmalat , Italy's biggest listed food group.
A financial advisor who specialises in the luxury sector said a price tag of 350 million euros would probably include the company's 90 million euros of debt, which would imply an equity value of 260 million.
The net figure of 260 million euros would value the business at around 12 times Brioni's estimated 2011 earnings of 22 million euros.
Such a valuation would put Brioni roughly in line with recent deals in the luxury sector such as Jimmy Choo which was acquired by the Labelux group and with Hugo Boss BOSG_p.DE, two luxury bankers said.
The brand (Brioni) is considered to be slightly tired and needs to be turned around, one of the bankers said. "PPR has experience with Gucci and would be well-placed to develop it," the banker said.
"And when the economy is going up, it is the right time to do it."
Brioni has been looking for external investors since 2008 but the process was hit by the 2009 spending downturn. Back then, the sale, which was run by BNP Paribas, was for a minority stake.
Based in Penne, Italy, Brioni is known for its tailored, handmade men's suits which can cost 5,000 euros.
The company abruptly parted ways last year with its chief executive, Andrea Perrone, grandson of Brioni co-founder Gaetano Savini, and appointed Francesco Pesci, who had been with Brioni since 2007.
Brioni has had internal disputes between the three family branches on how to take the business forward which is why it decided to enter talks with potential investors again.
($1=.6884 Euro) (Additional reporting by Pascale Denis, Julien Ponthus and Michel Rose) (Editing by James Regan and Jane Merriman)