Tod’s owner bid hardly looks luxurious for minority investors

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Tod’s customers prize its soft suede driving loafers. Its investors, however, may find the group’s latest proposition does not fit them so well.

The luxury shoemaker’s controlling shareholder, Italian entrepreneur Diego Della Valle, has teamed up with LVMH-backed private equity group L Catterton to take Tod’s private. The deal values Tod’s at €2bn including debt.

This is Della Valle’s second effort to delist Tod’s. An attempt in 2022 failed as shareholders judged his offer was too low. This time around, they are getting a better, though hardly premium, deal.

At €43 per share, L Catterton is offering a 17.6 per cent premium to Tod’s closing price on Friday. Though hardly a knockout, the shares have had a strong run recently. The premium to the three-month average share price looks more reasonable at 31 per cent.

However, one can argue that Tod’s share price does not fully reflect the group’s potential. The problem is that, through years of underperformance, it has worn its profitability thin. As such the buyout does not look too shabby at 20 times this year’s operating profit on S&P Capital IQ estimates.

But with more effort management might be able to double these earnings. That would bring them back to where they were a decade ago. Also on a multiple of sales, L Catterton’s offer looks underwhelming — just 1.7 times this year’s revenues. For reference, the buyout group recently floated Birkenstock at 5.5 times sales.

It may well be that L Catterton’s offer squeaks through. Turnarounds are easy to imagine but hard to pull off. Tod’s has attempted one for years. Its brand has lost some cachet, too. Its loafers, once de rigueur among business elites, get less attention than Loro Piana white-soled trainers. Shareholders may also be uncomfortably aware that, even if the offer fails, Della Valle will seek to delist the stock.

The entrepreneur himself would get a good deal. Under the terms of the agreement, he is a seller at €43 per share — albeit only of a 10.5 per cent stake. He will keep 54 per cent. LVMH, which owns 10 per cent of Tod’s, will also keep its stake.

In return, Della Valle gets the benefit of a partner with restructuring experience. And, should Tod’s then be sold on at a higher price, he would make a chunky profit on his remaining stake. Not so minority shareholders, probably irritated that they are not being offered the same opportunity.