Tod’s SpA is buying the Roger Vivier trademark for 415 million euros, or $441.7 million at current exchange rates. The transaction did not take the market by surprise and Tod’s shares on the Italian Stock Exchange closed up 0.51 percent at 79.50 euros, or $84.61, on Monday.
The luxury footwear brand is licensed to Tod’s by the seller, Gousson Consultadoria e Marketing S.r.l. This is an Italian company controlled by Diego Della Valle, chairman and chief executive officer of Tod’s, and his brother Andrea Della Valle, vice chairman of Tod’s. The purchase will be made by Tod’s through its subsidiary Partecipazioni Internazionali S.r.l.
During a conference call with analysts on Monday morning, Tod’s group’s chief financial officer Emilio Macellari said the deal was “somehow expected by the market and for sure by the company.” He characterized the agreement as adding “great strategic value to the group and significantly strengthening its brands’ portfolio.” The transaction “ensures full control removing all uncertainties connected to the license,” he added.
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Macellari underscored that Roger Vivier does not overlap with the other labels in the Tod’s group, since “it’s positioned in the highest segment of the market.” Actually, it “completes the range” of the group with its hand-crafted, “most refined production techniques” and “very exclusive materials.” The Tod’s portfolio includes the eponymous brand, Hogan and Fay. The acquisition will allow “full control over long-term planning strategies and activities with the aim to improve expected results and capitalize on the growth potential.”
Gousson is to reinvest 207.5 million euros, or $220.8 million, in Tod’s through a reserved capital increase. The shares will be subscribed at 83.53 euros, or $89, per share, the average price of the last six months, with a 5.6 percent premium versus the last price. The capital increase, explained Macellari, is aimed at reducing the effects of the purchase on the financial position. Macellari said he expected the group to close the fiscal 2015 year with a positive financial position of about 100 million euros, or $106.4 million, after reporting a positive financial position of 80 million euros, or $85.1 million, in the first nine months of the year. He foresaw the reinvestment of 50 percent of the price for the purchase, while the remaining 50 percent was to be paid by using credit lines facilities.
“We have more than enough money,” he said, underscoring that the cost of financing is “below 2 percent.” The executive said he did “not consider the transaction will affect the regular pay up as a listed company and the generous dividend policy will continue. Ordinary dividends will not be impacted.” Responding to an analyst, Macellari said the group is “not familiar with debt and is popular for not being indebted, [so] we prefer the soonest possible to be back in a positive cash position.” He said the company is not expecting to reduce its cash position or to modify its guidance or expectations.
Tod’s noted the completion of the transaction was conditional upon a voluntary white-wash procedure. This means the transaction cannot take place if the majority of the non-controlling shareholders vote against the capital increase reserved to Gousson in a shareholders’ meeting scheduled on Jan 13. The closing is expected by the end of Jan. 2016.
As part of the transaction, Tod’s subsidiary Roger Vivier France SAS has secured the possibility to buy Roger Vivier Paris SAS, the company managing the brand’s Paris flagship store on Rue du Faubourg Saint-Honoré, for 20 million euros, or $21.3 million, which includes a net financial position of at least 2.5 million euros, or $2.6 million.
No royalty will accrue starting from Jan. 1, 2016.
Sales of the Roger Vivier brand in 2014 amounted to 127 million euros, or $169 million at average exchange rate. The label accounted for 14.2 percent of the Tod’s group sales in the first nine months, and it remained the best performer of the group, reporting a 20.1 percent gain in the period (up 8.9 percent at constant currencies), to 112.1 million euros, or $125.6 million.
During the call, Macellari noted that Roger Vivier’s profitability stood at “above 27 or 28 percent.”
The brand has an earnings before interest, taxes, depreciation and amortization margin higher than the group’s average, also after the royalty payment. Macellari said royalties had an incidence of between 7 and 8 percent.
In the 2011-2014 period, compound annual growth rate was 51 percent.
“We know how strongly investors wanted this transaction,” said Macellari, trumpeting the acquisition. “We know how big the potential can be,” he said, defining the deal at “not a very expensive price. The growth rate is considered at a double -digit pace for the next years.”
After the transaction, which is set to close in January, Diego Della Valle’s stake in Tod’s will rise to 60.66 percent from 57.47 percent.
Following the capital increase, Gousson will hold 7.51 percent of Tod’s share capital, whilst all shareholders other than Diego Della Valle will be diluted of 7.51 percent.
Born in 1970, Roger Vivier is credited for creating the “stiletto heel.” The brand was dormant until the acquisition by the Della Valle family in 2001. It now offers shoes, handbags, small leather goods, sunglasses and jewelry.
The label is exclusively distributed in 31 directly operated stores and 4 franchised units. The exclusive strategy will continue after the deal, said Macellari. “We will not change the nature of the brand and will open three to five stores per year, not 10 or 15. It will be limited enough but able to generate a double-digit growth. We want to grow nicely but without particular pressure.”
Rogerio Fujimori from RBC Capital Markets wrote on Monday that he viewed “the deal as a long-term positive” for the group “for removing the uncertainty associated” with the license “giving it full control of a promising asset, with no further royalty payments from January upon deal completion.” Despite this, the analyst did no change his “cautious view on the stock based on weak SSSG momentum for the core Tod’s brand and relatively unattractive valuation vs. peers.”
Fujimori estimated that the acquisition implied a multiple of three times the estimated 2015 sales, which is “broadly consistent with past deals in the luxury space and a reasonable take-out multiple for an asset with an above-sector average growth profile.”
Luca Solca, managing director at Exane BNP Paribas, wrote that “multiples implied by the deal (3x sales) are not extremely high, taking into account the high end positioning of Roger Vivier (LVMH paid 3.7x to acquire Loro Piana).” However, Solca noted that “the deal only implies savings of the royalties for Tod’s (9.2 million euros[ $9.8 million] in 2014) for 415 million euros [$441.7 million]. This is very expensive (implied EBIT multiple of ca 40x). The Della Valle family is re-investing in Tod’s, but at a depressed valuation.”
