Shoemaker Tod’s should walk toward a sweeter offer

Driving-shoe maker Tod’s SpA always looked like a private company, what with the Italian Della Valle family having a majority. Now it soon might be. The founding family is teaming up with L Catterton, the private equity firm backed by LVMH, to buy out the remaining shares, valuing the company at €1.42 billion ($1.5 billion).

But the €43 per share that the consortium is offering looks as skinny as the sole on a pair of slimline loafers. Minority investors should hold out for a higher price.

Tod’s has been struggling to turn around its fortunes, with its more formal shoes battling against the rise of sneaker culture. Meanwhile, the slowdown from the extraordinary level of demand for luxury goods over the past three years to a more pedestrian growth rate makes things even tougher for brands that are in recovery mode, as Britain’s Burberry Group Plc and Kering SA’s Gucci have also demonstrated.

Away from the glare of quarterly reporting, the Della Valle family and L Catterton can take more radical action to revive the Tod’s brand, such as cutting back on sales through third-party retailers, which are more significant for Tod’s than its big luxury rivals. In the private realm, they could also reinvigorate luxury sneaker-maker Hogan and further develop high-end shoe-maker Roger Vivier.

The €43 per share offering to minority holders equates to a premium of 18% over Friday’s close of €36.36 and a 42% premium to January’s low. Minority investors would also be getting out at close to the 12-month high of €43.4 reached in July.

But this looks opportunistic. 

Luxury stocks have been battered by the normalization of industry demand. Minority shareholders would be giving up their shares at the trough for the sector, currently suffering from a slower-than-expected recovery in China and US aspirational consumers remaining in the doldrums.

There are also signs that Tod’s turnaround is finally starting to bear fruit, perhaps helped by the shift away from streetwear, which has reigned for a decade, to more formal looks, aided by the “quiet luxury” aesthetic.  The company said in January that it had seen improving trends and it was positive about its profit going forward.

LVMH has long been a minority shareholder in Tod’s, raising its stake to 10% from 3.2% three years ago. Bernard Arnault’s group will retain 10% after the deal, while the involvement of L Catterton strengthens the ties between the two companies. One possible outcome is that LVMH eventually acquires Tod’s outright. Minority shareholders should share in that upside along with the family and its buyout backer.

Shares in Tod’s rose as much as 18% in Milan on Monday to just below the offer price, suggesting hope that there could be a sweetener. It’s also worth noting that the current bid is just ahead of the €40 that the Della Vale family offered in August 2022. This plan failed to gain enough support.

The price put forward in the weekend’s deal is likely an opening shot. It could also thrust other luxury groups that are yet to make traction with their turnaround plans, such as Salvatore Ferragamo SpA and Burberry, into the sights of other buyout firms. 

But much will depend on how strident minority shareholders in Tod’s are with its bidder. They will get just one chance to extract the best value for their holdings. Like a long-awaited turn in the fashion cycle, they should not let it go to waste.