Prada Case Study
1) What is the problem facing Prada?
The Prada fell into some financial trouble. It needed to raise more than 1 billion euros to meet the long-term debt maturing in one year in 2011 and also required extra capital to implement its expansion plan in Asia market to seize the opportunity in this area which has the highest growth rate compared to the other markets. The demand for this huge amount of capital is quite urgent. The Prada has tried several times for IPO, but all terminated by some unlucky reasons. The market prospect for IPO, if Prada chose this way, was not clear and there were limited choices for Prada to raise the capital.
2) List the alternative methods Prada could use to refinance its maturing debt. In addition to the many alternatives mentioned in the case (start by listing those, grouping them in the two broad categories of “Debt” and “Equity”), what other variations of these debt and equity choices can you identify (try to give two or three others)? For each alternative, give one or two main “pros” and one or two main “cons”. These pros and cons can be entirely qualitative (non-numeric). Variations pros cons
Equity IPO in HK 1.higher valuation than listed in Europe
2. aim to the Asia market 1.HK market has lower liquidity
2.potential tax problem HKDR 1. listed in Milan but also can be bought and sold by investors in HK.
2.help future negotiation in China 1. may have lower valuation than IPO in HK
2. higher cost than IPO
Strategic partnership 1.current price for PE transaction is attractive
2.higher premium 1. higher cost than other alternatives
2. may cause partially loss of control of the corporation
Debt Traditional corporate bond 1.easily priced 1. further potential financial problem
2. higher leverage ratio Dim sum bond 1.aim to the Asia investors
2.potential appreciation in Chinese yuan 1. lower yields due to the small supply of this bonds
2.limited time period of Chinese yuan appreciation compared to the long
The Prada fell into some financial trouble. It needed to raise more than 1 billion euros to meet the long-term debt maturing in one year in 2011 and also required extra capital to implement its expansion plan in Asia market to seize the opportunity in this area which has the highest growth rate compared to the other markets. The demand for this huge amount of capital is quite urgent. The Prada has tried several times for IPO, but all terminated by some unlucky reasons. The market prospect for IPO, if Prada chose this way, was not clear and there were limited choices for Prada to raise the capital.
2) List the alternative methods Prada could use to refinance its maturing debt. In addition to the many alternatives mentioned in the case (start by listing those, grouping them in the two broad categories of “Debt” and “Equity”), what other variations of these debt and equity choices can you identify (try to give two or three others)? For each alternative, give one or two main “pros” and one or two main “cons”. These pros and cons can be entirely qualitative (non-numeric). Variations pros cons
Equity IPO in HK 1.higher valuation than listed in Europe
2. aim to the Asia market 1.HK market has lower liquidity
2.potential tax problem HKDR 1. listed in Milan but also can be bought and sold by investors in HK.
2.help future negotiation in China 1. may have lower valuation than IPO in HK
2. higher cost than IPO
Strategic partnership 1.current price for PE transaction is attractive
2.higher premium 1. higher cost than other alternatives
2. may cause partially loss of control of the corporation
Debt Traditional corporate bond 1.easily priced 1. further potential financial problem
2. higher leverage ratio Dim sum bond 1.aim to the Asia investors
2.potential appreciation in Chinese yuan 1. lower yields due to the small supply of this bonds
2.limited time period of Chinese yuan appreciation compared to the long