Permira, PAI play tactics with Cortefiel

Permira and PAI Partners swooped on Spanish fashion retailer Cortefiel with just hours to go before a 45-day bidding deadline expired. Their move trumped an offer made last month by CVC Capital Partners, raised the prospect of a sealed-bid competition, and promised a windfall either way for Cortefiel’s controlling shareholders, the Hinojosa family.

Permira and PAI offered €18.4 per share for Cortefiel on June 20, which values the controller of the Zara brand at €1.44bn. The offer is just 3% above CVC’s €17.70 per share (€1.4bn) offer, but is enough to instigate a formal auction at a time when CVC was so nearly home and dry on a desirable asset.

“I think Permira and PAI have acted smartly and won some valuable time,” said an official at a Spanish advisory firm not connected directly with either of the bids. “They have done the due diligence and see good prospects for Cortefiel. However, CVC is in a strong position, with access to management and a prior pact with shareholders.”

That prior pact is CVC’s ace in the hole. Shareholders representing 55% of Cortefiel’s stock are restricted under the terms from selling to a rival bidder unless the competing bid is 8% higher than the offer from CVC. The majority shareholders are mainly the Hinojosa family, founder members of Cortefiel. To come in 8% higher than CVC, a rival bid would have to be pitched at €19.3 per share.

Bankers said that Permira and PAI pitched lower because they might be looking to share ownership of Cortefiel with CVC, or simply playing for time before deciding to proceed with a higher bid. Cortefiel shares rose on the back of the second bid, raising expectations of higher offers in the next round.

The CNMV, Spain’s stock market regulator, must approve Permira and PAI’s bid, which is being advised on by JP Morgan and Citigroup, before a formal auction can commence.

Assuming a favourable outcome from the regulator, the Hinojosa family faces a win-win situation. A source familiar with the situation estimated the break-up fee – which shareholders would have to pay if they accepted a bid below €19.3 per share – at only €1.5m to €2.5m.

The Spanish buyout market is one of Europe’s hotspots. PAI, CVC and Permira are also up against each other and other bidders including Mercapital in the auction for Panrico. The sale of the Iberian-based food products company is expected to close at the end of the month for around €600m to €700m.