Finance and Prada

Topics: Corporate finance, Finance, Economics Pages: 16 (639 words) Published: September 29, 2013
Overview
•  Prada’s Financial State
–  €1 billion of debt maturing within 12 months (almost half in the next six months)
–  Prada also needed to raise capital to fund growth in Asia

•  Capital Raising Objectives
–  Fund Growth in Asia
–  Increasing working capital to manage Strained cashflow for the coming maturing debt
–  Strengthen Prada’s balance sheet and provide financial flexbility

•  Business Update
–  Forecasts for the growth in the next five years (2011-2015) was 10-11 per cent per year in Asia (with 15-20 per cent forecasted for china alone) –  Prada targeted the luxury segment

Alternatives for Raising Capital
•  Initial Public Offering
–  Prada has had problems with IPO – internal or just timing? –  Financial markets was unclear in the next 6-12 months –  Significant uncertainty in the world’s equity markets could result in Prada undervalued.

–  Risk for lost control of the firm
–  Where: HongKong, NY, Milan?

•  Strategic Partnership
–  Financial partners, pricing were very promising
–  In this case, the entreprise value of Prada is around 6051.3 million Euros. –  Lose control?

•  Debt
–  €750 million in five-year bonds at LIBOR plus 2.25 to 2.50 –  Bonds in U.S.
–  “dim sum bonds”- Chinese yuan-denominated bonds issued in Hongkong

Prada’s Financials

•  Unstable
 capital
 status,
 high
 growth
 in
 profi5bality
 and
 absolute
 control
 of
 PRADA
 
•  4.707
 billion
 ~
 13.065
 billion
 enterprise
 value
 according
 to
 different
 approachs,
 in
 this
 
case,
 we
 average
 the
 value
 for
 our
 next
 step:
 8.88
 billion
 

Cost Comparing
Cost
 of
 Equity
 
Finance
 

•  rf
 +β(rm
 −
 rf)=10%
 

Cost
 of
 Strategic
 
•  Same
 with
 Equity
 finance
 
Partnership
 
Cost
 of
 Debt
 

•  LIBOR+2.5%=4%
 

WACC
 aaer
 
IPO=
 8.88%
 

WACC
 aaer
 
Debt=
 8.1%
 

*Some
 facts:
 
 
LIBOR
 of
 2011
 (12m)=1.5%
 
10
 years
 US
 bonds=5%
 
MRP=5%
 

Pros and Cons-Captial Raising
Equity
 Raising
Ini5al
 Public
 Offering
Pros:
 
-­‐  Access
 to
 termless
 funding
 
sources
 
-­‐  keep
 absolute
 control
 of
 the
 
company
 
-­‐  Improve
 credibility
 and
 
 
reputa5on/awareness
 
Cons:
 
-­‐  Prada
 do
 have
 problems
 
with
 IPO
 in
 several
 5mes.
 
-­‐  Probability
 of
 loss
 control
 
Cost
 of
 Capital:
 
-­‐  8.8%
 

 

Strategic
 Partnership
Pros:
 
-­‐  Easy
 to
 handling
 
Cons:
 
-­‐  Pressure
 on
 return
 
-­‐  give
 the
 seats
 of
 board
 to
 
the
 partners.
 
 
-­‐  Lower
 valua5on.
 
Cost
 of
 Capital:
 
-­‐  8.8%
 

Debt
Bond

 Pros:
 
-­‐  Lower
 capital
 cost
 
Cons:
 
-­‐  Time
 constrains,
 and
 Prada
 
have
 to
 face
 the
 same
 
statue
 in
 the
 near
 future
 
Cost
 of
 Capital:
 
-­‐  8.1%
 

 

Estimated WACC of IPO
Similar
 Corpora5ons
 
Hermes
 

Ralph
 Lauren
 

Phillips
 Van
 
Heusen
 

LVMH
 

Hugo
 Boss
 

Chris5an
 Dior
 

Average
 Beta
 without
 leverage
 
Average
 Beta
 without
 leverage: 0.71
 

Average
 PE: 20.59
 

Prada
 
Market
 Value:
 5221.62
 

Beta
 with
 leverage:
 0.82
 

WACC
 of
 Prada
 
4.59%
 

Li&Fung
 

Valuation and Ownership Structure
•  We have valued PRADA for € 8.886billion, in this case, we planed the Ownership structure.
•  In order to keep control of the company for both the couples and prada family. We can easily calculate the percentage of...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about finance
  • finance Essay
  • Essay on Prada
  • Finance Essay
  • finance Essay
  • Finance Essay
  • finance Essay
  • Finance Essay

Become a StudyMode Member

Sign Up - It's Free