Does Prada’s IPO Look Less Than Fashionable?

High profile, luxury fashion brand Prada continues to move forward with plans to make an IPO on the Hong Kong stock exchange, where it will debut on June 24th. The company will list over 420 million shares at prices of $4-6 a piece, and initial reports signal that a bull-market for the IPO is already brimming in China, with Reuters reporting that the fashion-house has already generated 5x demand for shares. Prada is projecting major sales growth in the next two years, lead by surging demand in eastern markets which projects a 20% increase in consumer luxury spending by 2015. Goldman Sachs (NYSE:GS) is working in tandem with a number of Italian banks to orchestrate the IPO.

However, the Italian company has not drawn rave reviews from all international critics, as its most outspoken bears have emerged from right under the Milan-based business’ nose. Fellow Italian and potential early investor Luca Grassadoni, a fund manager associated with several Italian banking operations, felt considerable cause for concern when he attended a presentation/sales pitch for the IPO at Prada’s headquarters in Milan.

According to Grassadoni, “It is a clear short, it is the clearest short I have ever seen…The presentation was horrible. They were stiff and rigid. You are talking about a top brand…The only succession (strategy) is they sell. They will be bought by someone else. Maybe in more than (two years). I don’t think they have a future on their own.”

While Italians may be known to gripe excessively at times, Grassadoni does raise intriguing concerns with his criticism of Prada management. The firm is currently privately owned by Chief Executive Patrizio Bertelli and his wife Miuccia Prada, who are both in their 60s and own a combined 95% stake in the company. The co-owner couple has apparently authorized no plan for succession in management (assuming they will retire soon), which raises serious questions regarding the company’s future stability.

Glitz and glamour aside, Prada cannot expect to continue to be profitable without sound management. This concern was shared by other attendees of the Milan presentation. Another source added (from Reuters), “That’s a problem because Miuccia is head of design and he (Bertelli) is head of industrial aspects. Other managers are there for 10 years but certainly are not strong personalities and that can be a problem.” With no clear managerial leadership in line, some speculate that the firm is angling for a buyout, a result that might compromise the integrity and reputation of the family-owned label.

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