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Prada Buys Shares, Stock Moves How?

|Includes: Prada Spa ADR (PRDSY)

Summary

Bertelli buys shares on-market

Prada (1913.HK) - there is a saying in investment markets that a CEO/founder will sell shares in his company for a whole variety of reasons e.g. wife wanted a new house, in-laws needed a holiday...but the CEO/founder will only outlay cash to purchase shares on-market for ONE reason.  He thinks he will make money. Period. 

Prada takes it a step further.  Here is why.

1. The shares outstanding in Prada Group is 2,558,824,000.  Read it in the Annual Report.  It hasn't changed for years.

2. The 'family' - that is Miuccia Prada, Patrizio Bertelli and siblings of Mrs Prada own 2,046,470,760.

3. As a percentage, that ownership is 79.9770%.  The decimal points are key here.  Just keep listening for a moment.

4. Hong Kong stock exchange listing rules require a minimum free-float of 25%.  Should a company however, at its IPO, be approved to have a lower free-float requirement, that lower limit will apply indefinitely. 

5. So Prada's free float was 20.0230%.  Prada's approved limit at IPO was 20%. 

Now here comes the FUN part.

6. Patrizio Bertelli's personal company is called PABE 1.  He owns 100% of it and it holds his shares in Prada Group.  A fully owned subsidiary of PABE 1 is called PABE-RE LLC.  RE stands for Real Estate...He owns some properties here.  

7. Patrizio Bertelli through PABE-RE LLC purchased 1,000,000 shares on market over a few days in May 2017. 

8. You might think "oh it's only US$5mln". It's a mistake.

9. The free-float has now fallen below 20%.  It is 19.9839% to be precise.

10. A few years ago, Prada Group pleaded to the top brass of the HK stock exchange to conduct a share buy-back.  It was refused on several occasions because they wouldn't budge on a lower free-float limit.

11. This is a monumental signal because it crosses a line that the HK stock exchange so firmly drew and insisted on.

12. Oh and don't forget, Mr Bertelli is not throwing US$5 million down the drain.  He also thinks he can make money by buying shares on market.  

13. By the way, he paid an average price of around HK$36.50.

What does the market do?  Weigh facts incorrectly and ignore.  Efficient my a....

Disclosure: I am/we are long PRDSY.

Additional disclosure: I am long 1913.HK not PRDSY - which was the only option on SeekingAlpha.