Turns out the rumors were true this time. At the very least, Puma AG has a new majority shareholder that now holds all the shareholder seats on its supervisory board, and the brand may very well have a new owner when all the dust settles on the take-over deal announced last week. Puma announced that French luxury goods company Pinault-Printemps-Redoute, parent company to Gucci Group and other brands, had acquired the 27.1% ownership stake held by Mayfair GmbH, an asset management company that manages the investments of Günter and Daniela Herz and their families. Mayfair sold its stake to PPR for €330 per share, or €1.4 billion ($1.9 bn), which would put the total market cap for Puma at roughly €5.3 billion ($7.1 bn).

PPR quickly made its intentions quite clear, extending the €330 per share offer to all remaining Puma shareholders.
Puma shares closed the week up 8.1% to €340 per share from €315 per share the week before. PPR said their offer, which was described as “firm and final,” represents a 24% premium over the share price set before rumors of the PPR takeover drove the price up 15% the prior week (SEW_0715). The offer price would represent a multiple of 12.2x Puma’s 2006 EBITDA or 13.4x EBIT for last year.

Puma management described the transaction and subsequent bid to acquire the entire company as a “voluntary public take-over offer by PPR to PUMA shareholders.”
The bid is expected to be published next month and shareholders will have five weeks to accept the offer. Shareholders at the annual general meeting were apparently not as enthusiastic about the offer price, but François-Henri Pinault, chief executive of PPR, said he would not set a minimum acceptance level for the bid and that he was content with the 27% if other investors did not tender their shares. He described the deal as a strategic investment, not a financial one, and focused most of his attention on the various strategic synergies for the two companies. Giving him even more comfort is the fact that PPR will hold half the seats on the supervisory board, which was confirmed by shareholders at the AGM.

Mr. Pinault, Jean-Francois Palus, current PPR chief financial officer, and Gregoire Amigues, PPR’s head of strategic business development, will take the seats on Puma's supervisory board if the European Commission approves the planned takeover by September 30. They will replace Mayfair’s Guenter Herz, Hinrich Stahl and Johann Lindenberg. Mayfair had picked up the seats in late 2005 after it became the majority shareholder. If the EC fails to approve the acquisition by September, Herz, Stahl and Lindenberg will have to sit on the board for their full five-year appointment.

As for synergies, most of the talk at the various press conferences last week focused on the owned-retail and multi-channel capabilities of PPR. They also pointed to design and sourcing competencies at PPR, particularly at the high end, and PPR’s expertise at managing multiple aspirational brands.

Acquisitions are still a real part of the strategy for Puma, which stated in its Phase IV objectives the intention to acquire a company or companies that fit their financial model. Jochen Zeitz said the stated figure of €400 million that he feels Puma can spend for an acquisition was an average, indicating they could acquire a company for a little more if they made another deal for less.

Mr. Zeitz also sounded a word of caution, saying that Puma is “no longer the new kid on the block” and is in a very competitive market today. Key potential issues include challenges to short term growth, “particularly in the U.S.,” where “acceleration in recent years” now requires them to “consolidate their growth.” Zeitz would not elaborate of the state of the U.S. business other than to reiterate the year-end backlog figures that reflected a 6% decline in the order book versus the previous year-end. He also pointed to stronger product as a goal and an expansion of owned-retail.

Pinault-Printemps-Redoute has a portfolio of properties that is about 80% retail and 20% luxury brand ownership. Puma’s owned-retail represented about 15% of total sales in 2006.

Addressing concerns about Puma’s autonomy and commitment to the sports business, Pinault pointed to PPR’s own organizational model as one focused on “great autonomy and great self-reliance on the businesses within the group,” which he said is exemplified by their motto, “freedom inside a framework.” For those worried about PPR being new to the sports market, the company can point to its ownership of Redcats Group, which last year acquired Sportsman’s Guide and its golf arm, The Golfer’s Warehouse.

As for Mr. Zeitz, he is under contract through 2009 and plans to stay on to manage the business as long as the board wishes him to do so.

Late in the week Standard and Poor's said that it may cut PPR's credit ratings to “junk” status from investment-grade, due to the Puma bid. PPR currently has an S&P credit rating of BBB-, the lowest in the investment-grade category and a downgrade to “junk” could raise the company's funding costs significantly, according to analysts covering the deal. The downgrade opinion was seen as a refection of uncertainties regarding the bid's cash impact, which in turn depends on the final price paid by PPR and whether all of Puma's existing shareholders sell their shares.

>>> Most analysts doubt that PPR will pick up 100% of shareholders at the current bid price, but the deal structure with its board seats also stymies efforts by others to buy the entire company. PPR said they had no intention of re-selling their newly acquired shares…