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Reuters API
Apr 6, 2017
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Inditex founder shields stake to maintain family control

Reuters API
Apr 6, 2017

Amancio Ortega, founder of the world's biggest clothing retailer Inditex and Europe's richest man, has put a majority stake in the firm that owns the Zara fashion chain into a holding company to ensure family control remains unassailable after he dies.

Corporate filings in Spain's Mercantile Registry show the reclusive 81-year-old put a 50.01 percent shareholding into Pontegadea Investments in December 2015, along with more than 6 billion euros (5 billion pounds) in prime commercial real estate.

Ortega's heirs will now inherit stakes in Pontegadea, which groups assets worth around 57 billion euros, rather than Inditex shares which potentially could be sold, muddying prospects for the company's direction.
"The absolute priority for Ortega is to guarantee the future of the company, to ensure a controlling stake in Inditex that will not be diluted," a source close to Pontegadea told Reuters when asked about the reasoning behind the structure.

The move aims to preserve continuity in ownership and management, said the source, who asked not to be named because of the sensitive nature of the issue.

It also is likely to maintain the firm's paternalistic presence in the northwestern region of Galicia, where Ortega lives.

A former errand boy, Ortega built his empire in the mid-1970s from a Zara store in his hometown, the rainy fishing port of La Coruna, to a network of over 7,200 stores that employs tens of thousands globally.

His success has had a huge knock-on effect on local businesses in Galicia, from Trison, which makes video displays for Zara stores, to Candido Hermida, a furniture maker which fits out Inditex stores worldwide.
His charitable foundation, Fundacion Amancio Ortega, has invested millions in projects such as opening kindergartens in the region and training local schoolteachers.

In setting up Pontegadea, Ortega aims to avoid the fate of businesses like chocolate maker Cadbury and fashion house Laura Ashley, whose founding families lost control of their empires as their shareholdings were diluted and they retreated from management.

Ortega also follows the example of other founders of successful corporate empires. Fashion designer Giorgio Armani set up a foundation last year to control the business empire he started in the 1970s. Hans Wilsdorf, the founder of luxury watch maker Rolex, in 1944 placed all of his shares in the Hans Wilsdorf Foundation, which has owned and run the company since his death in 1960.

"Depending on the terms of the trust, this should help alleviate any fears of shares being placed in the market on the event of his (Ortega's) death," said Adam Cochrane, retail analyst at UBS.

Independent retail analyst Richard Hyman said the move was a way of protecting the Inditex brands, which in addition to Zara include the upmarket Massimo Dutti label and teen fashion chain Bershka.

"The most important asset that Inditex has are its brands and the biggest risk to branding is dilution," Hyman said.
"It is hard to predict what is going to happen in the apparel industry, the most risky sector in retail. Protecting a majority stake reduces the chances of a takeover that could lead to cost cuts that end up damaging the brand."


Ortega became a billionaire and Spain's richest man at the age of 65, when Inditex was listed in 2001. He continues to live in La Coruna where he is often seen walking his dog.

Funds from the listing were used at the time to set up Pontegadea, which is structured as a private limited company.

A Pontegadea spokesman declined to comment for this article, and an Inditex spokesman said the company did not comment on any matter related to its shareholders.

Corporate filings show that Ortega is Pontegadea's chairman and his wife Flora Perez and close business partner Jose Arnau are vice-chairmen.

Arnau, vice president of Inditex's board of directors, is a former tax inspector and has been closely involved in the managing of Ortega's personal wealth since 1997. He managed Inditex's tax affairs from 1993 to 2001.

Perez is Ortega's second wife. He separated from his first wife Rosalia Mera, who died of a stroke in 2013, in the 1980s.

Perez has a seat on Inditex's board as the representative of Pontegadea's 50.01 percent stake. Her brothers also hold key positions - Oscar Perez is director of flagship brand Zara while Jorge is the director of Massimo Dutti.
Ortega has three children: his daughter with Perez, Marta, 33, who works at Zara, and two children from his first marriage, Sandra, 48, and Marcos, 46, neither of whom have pursued careers at Inditex.

Sandra, the second-biggest Inditex shareholder with a 5.05 percent stake, works at a Galician charity focused on helping disabled people find work. Marcos was born with cerebral palsy and is severely disabled.

Ortega split with Spanish tradition when he handed the roles of chief executive officer and chairman outside the family to Pablo Isla, 53, one of Spain's elite squad of state lawyers, six years ago.

Entrusting the day-to-day running of the company to Isla was widely seen as removing any uncertainty about succession plans.

Poached from tobacco firm Aldatis in 2005, Isla has overseen a tripling of the company's value during his tenure.
Ortega still goes to work every day at the company's headquarters in Arteixo, turning his hand to everything from fashion collections to shop floor design.

He has made largely debt-free purchases of prime real estate around the world using the dividends from his total stake of just under 60 percent of Inditex, which have nearly doubled over the past five years to a record payout of 1.26 billion euros in the latest financial year ended January 2017, according to a source with knowledge of the matter.

His property portfolio - roughly split equally between office and retail - include mining company Rio Tinto's headquarters in London; Zara rival H&M's flagship San Francisco store on Powell Street and a five-storey Primark store on Madrid's Gran Via.

Income at the real estate division that also sits under the Pontegadea holding company was 129 million euros in 2015, mostly from rental income, according to results available from that year.

($1 = 0.9260 euros)

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