09-08-2010 18:53
Attire maker Fila to hold IPO this month

Fila Korea CEO Yoon Yoon-soo
By Kim Da-ye

Fila Korea is a sportswear maker with an unusual history.

Once a subsidiary of an Italian firm, it bought out itself in 2005 and then acquired Fila¡¯s global business in 2007. The local media called the deal, ¡°The tail eating the head.¡±

The Korean firm is once again under the spotlight as it will be listed on the Korean bourse by the end of September to raise about 100 billion won in the market.

Fila was founded in 1911 in Biella, Italy, producing underwear and later sports clothes which were worn by famous sports stars including the 1970s tennis star Bjorn Borg.

Its Korean subsidiary was set up 80 years later in 1991 under the control of the Italian parent firm Fila Sport SPA. It, however, separated in 2005 through a ¡°management buy-out¡± ¡ª two years after the troubled Fila Global was sold to an American hedge fund that owned the brand through Sports Brands International (SBI).

In 2006, Fila Korea set up GLBH Holdings which succeeded in buying Fila Luxembourg, the holder of the worldwide rights to the Fila brand, from SBI for $400 million.

Fila Korea couldn¡¯t finance the deal alone and had to borrow from financial investors. Part of the borrowed sum is 2.75 million convertible preferred stocks issued to Fine Partners, Mirae Asset Partners, Military Mutual Aid Association and Samsung Securities. The stock value was set at 20,000 won per share with the annual compound interest rate set at 9.5 percent.

While the investors had the right to sell stocks back to Fila, they also asked that the company should be listed in three years. And this IPO is all about keeping the promise.

Fila Korea hopes to list 3.25 million shares including 2.25 million shares owned by financial investors at the price of between 30,000 won and 35,000 won per share. It is expected to raise between 97.5 billion won and 113.8 billion won.

Both Fila and the market see the offering price appropriate or even under-valued. The company is obliged to pay financial investors the difference if the offering price does not match the stock value of 20,000 plus interest.

Such an amount would have been burdensome to Fila a year ago, but its profits are improving fast. One way to calculate the right stock price is multiplying the net profit per share by the market average price earnings ratio ¡ª the figure indicating the profitability of a stock.

The sales of Fila Global jumped 26 percent to $544 billion in the first half of 2010 from $431 a year earlier. During the same period, the sales of Fila Korea grew from $130 million to $169 million and Fila USA from $36 million to $45 million.

Furthermore, Fila Korea¡¯s annual operating profit has increased from 2.7 billion won in 2007 to 57 billion won in 2008 to 85 billion won in 2009. Its operating profit for the first half of 2010 stood at 49.2 billion won, of which the net profit was 44 billion won. Its 2010 second quarter net profit per share was 5,176 won ¡ª five times as much as the 955 won reported a year earlier.

Its curb market price has also skyrocketed to 38,500 won a share as of Monday from just above 20,000 won before the IPO was announced.

Park Chon-an, chief financial officer of Fila Korea, said that he does not consider the expected offering price as high because the firm has paid back much of its debt and has improved sales in Korea and the U.S.

¡°We did not set the expected offering price higher even though our underwriter thinks we can do so,¡± said Park. ¡°We believe the change in the stock price is up to the market once our firm is listed.¡± The underwriter for this IPO is Samsung Securities.

Daewoo Securities analyst Yoo Jeong-hyun agrees, ¡°Basically, their earnings are good. I expect their net profit this year to reach about 70 billion won. The offering price is appropriate or even good for value.¡±

Fila Korea¡¯s main strategy for the future is generating most of its revenues from royalties paid by licensees. It plans to turn all subsidiaries except Fila USA into licensees which will develop their own products and execute their own marketing campaigns.
Fila Korea owns 100 percent of the Fila Global¡¯s holding company GLBH Holdings, which then owns the entire Fila Luxembourg. The latter owns 100 percent shares of Fila USA and Fila Sport HK.