Geox announced this week that its founder, chairman and controlling shareholder, Mario Moretti Polegato, has been chosen as the preferred bidder for the embattled sportswear group Diadora, which is owned by Marquis Gianluca Spinola.

Polegato made an offer through LIR, a holding company that he owns with his young son Enrico. LIR already owns 71 percent of Geox as well as some property assets and a minority stake in a publishing group. It is estimated to have a cash pile of about €400 million.

LIR was favored over the private equity funds Orlando Italy and Atlantis Partners. The details of the operation were not yet known at the time this article went to press, but LIR is believed to have offered a few million euros more than its rivals. The bids are estimated to value Diadora at between €40 million and 50 million.

After several years of losses, Diadora made an operating profit of €5 million before amortization and depreciation (Ebitda) on revenues of €135 million, including €8 million in royalties. It tuned in a net profit of €8 million after extraordinary gains on the partial sale of its operations in China. Adding the wholesale-equivalent sales of its licensees around the world, including about $60 million in Brazil alone, aggregate sales reached €270 million. Revenues are almost equally split between footwear on one hand and clothing and accessories on the other.

Obervers feel that, as a strategic investor, Polegato could do much more for the brand than Marquis Spinola, a wealthy Swiss-based investor who has a large portfolio of investments in publicly quoted companies. They wonder, however, whether Polegato will be able and willing to keep on with Diadora’s most recent efforts to remain a desirable sports brand while upgrading its image as a fashion brand with Italian design.

For the moment, Diadora’s immediate future is linked to the choices that will be made in terms of the personnel. The trade union UIL said it would have preferred an investment in Diadora by Atlantis, a mysterious equity fund that had apparently guaranteed to save 210 jobs out of 263 at the company. Union sources claim that LIR is considering keeping only about 70 jobs. The union held pickets during the week outside Diadora’s premises. It met representatives of LIR yesterday and another meeting is now scheduled for next Wednesday. The union said it wants to save at least half the jobs at the company.

As Diadora is technically in default of its bank loans, which the current owners had tried to reschedule beyond a deadline set for this month, LIR is expected to first rent the company’s assets, using the same procedure followed by Lotto, and then buy them. Diadora should meet its creditor banks at the end of the month to reach an agreement on its debt. The company is estimated to have a net debt of about €70-80 million.

The group’s chief executive, Enrico Mambelli, who has been at Diadora’s helm for four years, is due to leave the company tomorrow, looking for a new challenge. A former chief executive of Gianfranco Ferré, the 48-year-old executive has been able to turn the company around.

Considering also the fact that the head offices of Diadora and Geox are not far from each other, there has been some unconfirmed speculation that LIR could seek to merge some of the operations of Diadora with Geox. In any case, Diadora’s expertise in the sector could be beneficial for Geox in the development of the line of sports shoes that it first launched in April 2008, using its own patented breathable sole technology. Its first attempts in the sector have been regarded as very preliminary. Diadora is taking care of development for Giorgio Armani’s sneakers, for example.

Geox aims to sell 300,000 to 500,000 pairs of sports shoes under its own brand in 2010, compared with the overall 35 million pairs of street shoes it expects to sell in the same year. Geox considers the period to 2010 as a start-up phase for the new business to which it will apply the proven strategy it has used to develop its brown shoe and apparel businesses.

Industry sources do not believe that it is Polegato’s intention, at least in the short term, to merge the two companies financially, considering especially the fact that Diadora’s large debt and its low profits would water down Geox’ balance sheet. According to sources close to the deal, it will take at least one month before LIR can present a business plan for Diadora and unveil any possible partnership deals with Geox. Opportunities exist for the brand in the U.K. and other markets. It is felt that the strong middle management team set up by Mambelli could take care of the company for the immediate future (more in SGI Europe).