Prada Group and Salvatore Ferragamo have completed their initial public offerings but their outcome has been less spectacular than the expectations formulated ahead of their stock market introductions, explaining in part why the shareholders of other luxury companies such as Jimmy Choo have recently preferred to cash out by selling their shares to institutional investors. The Prada and Ferragamo family continue to control the respective companies.

Both Prada's and Ferragamo's shares have gained some ground since they started trading on two different stock exchanges. Prada's decision to list on the Hong Kong stock exchange to be able to sell its shares at a higher price than in Italy paid off only slightly when compared with Ferragamo's IPO on the Milan stock exchange, despite a tax pitfall.

Prada's IPO generated proceeds of about €1.5 billion, 20 percent less than originally planned. Based on the introductory price of HK39.50 (€3.53-$5.08) of its IPO, Prada was valued at nearly 23 times its forecast earnings for 2011, a slightly higher multiple than those of LVMH or Hermès. After a tepid start on its market debut on June 24, Prada's share price gained some momentum and was trading at HK$46.1 on Friday, July 8.

In the meantime, Ferragamo's IPO was subscribed 3.6 times and the price was set at €9 per share, roughly in the middle of its price guidance of €8-10.50. On June 29, on the first day of trading, the share price rose by more than 8 percent and continued to rise and closed at €10.60 on July 8.

Ferragamo had decided to float on the Milan stock exchange to emphasize its Italian origins. Based on the IPO price, the stock was valued at about 22 times estimated net profits for 2011, way below the stated maximum target of 36 times profits.

During the road-show organized to promote Prada's stock among institutional investors, it transpired that institutional investors were willing to buy five times more shares than those on offer. But as the placement of the shares progressed, Prada had to reduce their price range and finally set the introduction price at HK$39.50, at the lowest limit of its revised guidance.

Retail investors did not respond as expected to the offer and only bought half of the shares initially allotted to them, so the others were consequently redistributed to institutional investors. Retail investors were deterred by an unusual capital gain tax of 12.5 percent that will be due to the Italian inland revenue when they resell Prada shares, stemming from the lack of a double-taxation treaty with Italy. The Hong Kong government is currently in talks with Italy to reach an agreement that would avoid this double taxation.

Some institutional investors were also put off by the tax hurdle. Some speculative funds withdrew their orders as the Hong Kong market showed some weakness in June and Samsonite's debut on the Asian exchange on June 16 started with a drop of about 8 percent. The final demand for Prada shares by institutional investors only represented about three times the shares offered to them. They bought 402.5 million shares, or 95.1 percent of the shares sold in the IPO, and retail investors 20.8 million. Prada managed to sell an additional 63.5 million shares to institutional investors thanks to an overallotment option. The two transactions raised a combined HK$19.2 billion (€1.72bn-$2.47bn), of which HK$16.9 billion (€1.51bn-$2.17bn) went to Prada's shareholders and HK$2.3 billion to the company. After the exercise of the overallotment option, the Prada family and its chief executive, Patrizio Bertelli, still owned 80.0 percent of the company.

The size of the listing secured Prada's ranking as the largest consumer product IPO in Hong Kong ahead of Belle International, the big Chinese shoemaker and retailer, which was floated in 2005. Prada is also the first Italian group to be listed on the Asian exchange.