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Troubles at Fin.part: KPMG Cites Tension, Refuses to OK Books

Cerruti parent Fin.part got a slap this week when auditor KPMG, questioning the feasibility of its business plan, declined to certify the firm’s 2002...

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MILAN — Falling.apart?

The company says no, but Fin.part, the multibrand group that owns Cerruti, got a slap in the face this week when auditing firm KPMG, questioning the feasibility of its business plan and citing "financial tension" in its books, declined to certify the company’s 2002 accounts.

Fin.part fired back, calling KPMG’s stance "absolutely unjustified," and said it reserves the right to take legal action.

Founded in 1996 by Gianluigi Facchini, now its chairman, Fin.part went on an acquisitions binge, amassing a stable of brands such as Cerruti, Maska and home linens group Frette. The company also bought Pepper Industries, Henry Cottons, Moncler and Marina Yachting — all sportswear labels — as well as the footwear firm, Andrea Pfister.

But most of that binge came during the fashion group craze of the late Nineties through 2001, when feverish corporate brand-buying led to a sky-high seller’s market, and as a result, Fin.part, among others, amassed crippling levels of debt.

Facchini, meanwhile, contends that Fin.part has accumulated less than $432 million in debt to this point and that his banks are willing to invest more to recapitalize the company. Fin.part’s 2002 consolidated sales came to $494.6 million. Dollar figures have been converted from the euro at current exchange.

Among the sticking points, KPMG said it had no evidence that Fin.part will succeed with plans for a capital increase or find buyers for the nonstrategic assets and real estate it wants to sell. The auditor said it couldn’t verify whether Fin.part had the "base conditions" needed to continue operating. Fin.part has a large bill coming due in July 2004 when $216 million of Cerruti bonds expire.

Fin.part responded by saying that KPMG didn’t consider pertinent information including a guarantee for $48.6 million from its bankers or that the company is concluding the process of selling assets and finding new investors.

"The auditors interpreted their mandate in too restrictive a manner," Facchini told WWD, adding that the firm will provide KPMG with more information in the coming days in hopes of a new verdict. He noted that the group’s banks approve of the strategic plan and are willing to give Fin.part another $108 million this year to recapitalize.
Facchini said Fin.part is in "advanced talks" to sell off some real estate and manufacturing assets. In contrast to prior strategies, he pointed out that selling brands isn’t in the cards, but it could be in the future.

One Milan-based equity analyst cautioned that the firm had better find financing quickly or sell off a large brand like Frette. "Obviously, if they don’t do it on time, they run the risk of going out of business," he said.

Other sources indicated the Cerruti business has been shopped around, but Facchini is said to be seeking a premium price that will recoup what he paid during the inflated seller’s market of the Nineties. Those heady days ended about two years ago, with the now defunct Pegasus Group perhaps the industry’s most noted casualty.

Since acquiring Fin.part with partner Giancarlo Arnaboldi, Facchini has consistently run into roadblocks in his attempt to build the company into a luxury fashion powerhouse. In two separate transactions, it bought a 51 percent stake in Cerruti in 2000, paying about $70 million for its controlling interest. Earlier in the year, it had sold its Bonaparte hotel division for approximately $136 million, earmarking that money and another $50 million in warrants issued in 1998 for fashion and luxury acquisitions.

But after the Cerruti acquisition, servicing debt became a higher priority than its desire for a fashion empire. One year ago, Facchini said the company would seek to sell most of its assets in an attempt to reduce its debt load, as well as to focus on the development of the Cerruti business.

Originally, the debt-reduction plan was to sell Fin.part’s sportswear labels and generate about $187.5 million from those divestitures. Last May, the firm did manage to sell the sportswear label, Best Co., to its distributor, Cisalfa, but barely dented the debt with just $2.7 million in proceeds from the sale.

Last summer, Fin.part acknowledged that it would look into selling non-sportswear assets as well, including footwear label Andrea Pfister, if it wasn’t able to fetch a suitable price for its sportswear assets. In a market increasingly biased in favor of buyers, it’s been unable to get such a price and, since last July, has focused on selling Frette. The luxury linens and loungewear firm, which had about $135 million in 2001 sales, certainly fits the profile of Opera, the Italian investment group, but earlier this week, as reported, talks between Opera and Fin.part had stalled.
In an effort to calm fears, Fin.part said its first-quarter revenues rose 6 percent to $137.2 million from $129.4 million in the prior-year quarter. It also said clothing orders for the fall-winter season are up 11.9 percent on the year to $184 million.

Facchini personally owns 19.5 percent of Fin.part while the Libyan Arab Foreign Investment Company SA, or Lafico, Libya’s corporate investment arm, holds 8.95 percent. Facchini said Lafico will "adhere to any eventual capital increase."

Another component of the Fin.part universe hit its own rocky patch. Textile company Olcese, which counts Fin.part as its biggest shareholder, also failed to get its 2002 accounts approved.

Deloitte & Touche Italia said it was concerned that Olcese might not secure proper financing to continue operations. Olcese in response said it is revising its business plan to generate positive results in the future.

Fin.part holds nearly 30 percent of Olcese, while Lafico owns another 21.7 percent of the firm.
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