It was this allure that helped spark a bidding war last year for its maker, Rome group Fendi. Arnault, the biggest shareholder in France's LVMH Moet Hennessy Louis Vuitton SA, and Prada SpA's Bertelli, normally archrivals, teamed up to trump a competing offer by Gucci Group NV. But to do so, they had to plunk down a pile of cash so big-1 trillion lire ($483.6 million) for an evenly divided 51 per cent of the company-that it arguably became the sale of the year in European fashion for 1999.

Fashion's newest dynamic duo already has set about completely revamping Fendi, with a sales target of 1 trillion lire for next year, triple the 1999 level. But while the Prada-LVMH combination is clearly potent, the process of transforming a company long run by a sprawling Italian family into a professionally managed group won't be simple.

Until quite recently, Fendi was little known outside of certain fashion circles. From its birth in 1925 as a single shop near Rome's Piazza Venezia, Fendi grew into a solid supplier of heavy fur coats for the city's well-heeled matrons after World War II. A major break came in 1965, when the five daughters of the founding matriarch brought in a young German designer named Karl Lagerfield, who made Fendi an international name with wonderfully trendy furs. While the furs long remained Fendi's signature item, the group later diversified into apparel and accessories.

But Fendi's fortunes truly took off three years ago with the invention of the Baguette, the soft deconstructed bag that fits snugly under the arm and comes in hundreds of combinations of colours and fabrics. Stars such as Sofia Loren and Madonna started sporting the bag, which can cost as much as $5,000 for the most extravagant version, while the young and trendy had to suffer waiting lists for the most popular styles. The success of the Baguette put the Fendi sisters in an enviable position last year.

The five had never taken much interest in closely managing their company which had grown largely through licenses for everything from umbrellas to beach towels, and had never seriously invested in the production and distribution network that would have eliminated those waiting lists for the Baguette. But suddenly they found themselves with a red-hot product that gave new shine to a somewhat tarnished image, making Fendi look like a diamond in the rough to potential buyers.

At the same time, the consolidation of the European luxury-goods sector was being driven in large parts by accessories, the cash cow of fashion, and three European fashion powerhouses-LVMH, Gucci and Prada-all had coffers full of money they were looking to spend on acquisitions. The result was a year-long bidding war the five sisters, their 11 children and respective advisers were only too happy to encourage, people familiar with the talks say. " They were lucky beacause of what happened during 1999," says one person. The sisters played Gucci and Prada off against each other."

That wasn't hard to do, given that Europe's biggest luxury groups battled it out repeatedly for the handful of underdeveloped brands with global potential that came up for sale last year. So, with the price levitating in the autumn to record breaking levels, Bertelli-short of cash following a raft of other acquisitions-turned to Arnault for help. When the two offered a price that valued Fendi at 33 times profit, Domenico De Sole threw in the Gucci towel. "We are not crazy, Gucci's chief executive said at that time. There is a limit to what we can pay to add value to shareholders.

The new owners bring tremendous expertise to the Roman group. Bertelli, who started out as a maker of leather goods, will help Fendi set up the production system it needs to satisfy current demand and meet future orders as the business grows. LVMH will bring its distribution and marketing power to strengthen the Fendi image, and open dozens of fully controlled shops around the world. They have aggressively eliminated most of the licenses, a move that is already driving sales and margins higher. The leverage available for the brand is enormous, given that Fendi's most popular accessories enjoy margins upward of 70 per cent, compared with the 10 per cent to 20 per cent the sisters were earning under licenses.

"There are incredible synergies" with Prada and LVMH, says Carla Fendi, who chairs the company. The main problem facing the new owners is the number of cooks stirring the Fendi pot. Bertelli and Yves Carcelle, head of LVMH's Louis Vuitton division, will take turns sitting in the chief executive's chair, while the family has retained key positions such as design and image. The odd mix between professional managers and an Italian family-run company-a category notoriously difficult on outsiders-could be explosive, particularly given the costly task of repositioning the brand on a global scale quickly enough to profit from the cachet of the Baguette. "They are going to have to make big decisions that will cost hundreds of billions of lire", says Carlo Pambianco, a Milan fashion consultant. "I think that they will have to have a single chief executive at some point".

-- The Wall Street Journal