Italy loafer buyout is a bet on a higher price tag

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3 minute read

Tod's Chairman Diego Della Valle looks on during an interview a day before the presentation of the Colosseum dungeons which have been restored in a multi-million euro project sponsored by the fashion group in Rome, Italy, June 24 2021. Picture taken June 24 2021. REUTERS/Remo Casilli/File Photo

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MILAN, Aug 3 (Reuters Breakingviews) - Two decades after listing Tod’s (TOD.MI) in Milan, founder Diego Della Valle is taking the maker of iconic loafer shoes private. The Italian tycoon’s hope is probably that, split into different parts, the Italian group would command a better price tag than his 1.4 billion euro bid implies. Shareholder LVMH (LVMH.PA) is sticking with Della Valle. Other investors may have to swallow the lowball offer.

Tod’s was once a king in the world of pricey shoes. The group’s iconic “Gommino” loafer, launched at the end of the 1970s, captured the trend of expensive casualwear decades before it became mainstream. Tod’s initial public offering in 2000 encouraged others, including larger rival Prada, to also list.

Unfortunately, Tod’s has been unable to innovate much since. Its stock has long languished at less than a third of a peak of around 140 euros hit in 2013. Expected revenues of 973 million euros this year are roughly in line with those Tod’s generated a decade ago, Refinitiv estimates show.

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Hoping to revamp the group, Della Valle, who owns nearly 65% of Tod’s, announced on Wednesday that his family would offer 40 euros a share to investors to delist the group, a skinny 20% premium on Tuesday’s close. LVMH, whose Chairman Bernard Arnault is a friend of the Italian entrepreneur, plans to keep its 10% stake in the Italian fashion group. That means Della Valle would have to disburse around 338 million euros to buy out the remaining 25% of shares.

Away from market scrutiny, the dominant shareholder probably hopes to transform his creature. Low-value brands Fay and Hogan do not fit Tod’s luxury aspiration and could be sold to high-street players. Pilgrim pumps maker Roger Vivier, which Della Valle acquired in 2015 for 415 million euros, is a hidden jewel. If valued at 4 times Breakingviews’ 2023 sales forecast of 250 million euros, in line with Prada’s multiple, it could be worth a billion euros. LVMH is an obvious potential acquirer. The Tod’s brand itself may command the same price tag if valued on Salvatore Ferragamo’s (SFER.MI) 2 times forecast 2023 sales. Combined, the two brands alone would offer a 40% upside on the 1.4 billion euro enterprise value implied by Della Valle’s offer.

For minority investors, the exit price is probably not particularly appealing. But with Della Valle’s large stake discouraging any rival bid, their best bet may be to go along with it.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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CONTEXT NEWS

Diego Della Valle and his family, founders of Tod’s, said on Aug. 3 they will launch a takeover offer to delist the Italian fashion brand.

Under the proposed take-private offer, shareholders will receive 40 euros a share, a 20% premium on Tuesday’s closing price of 33.42 euros. Tod’s, best known for its leather loafers, had priced its shares at 40 euros in an initial public offering in Milan in 2000.

The offer values the company’s equity capital at just over 1.3 billion euros, or around 1.4 billion euros including debt.

The Della Valle family owns a stake of nearly 65% in Tod’s. French luxury giant LVMH owns 10% through an investment vehicle. The offer targets 25.55% of Tod’s capital, and would cost the family 338 million euros.

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Editing by Neil Unmack, Streisand Neto and Oliver Taslic

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