Permira is to buy a 29.6% stake in Valentino, one of the world's top fashion houses, for 782.6 million euros ($1.06 billion), joining a small number of private equity firms in the luxury brand business.
Permira, which beat U.S. rival Carlyle to claim the stake, said on Wednesday it would become the single biggest shareholder Valentino.
"We are interested in increasing the stake, also through a public tender offer," it said in a statement.
But Carlyle appeared ready for a fight, with one source close to the situation telling Reuters that the "game is not over" yet.
Best known for the floor-sweeping gowns designed for Hollywood stars, Italy's Valentino Fashion Group has a wardrobe of brands including Hugo Boss and Marlboro Classics.
Valentino was founded in 1962 by Valentino Garavani and he is still creative director. The celebrities he dressed for Wednesday's opening of the Cannes Film Festival include Chinese actress Gong Li.
Private equity firms are relatively new players in the fashion and luxury goods business, attracted by the strong demand for bags, clothes and other products from a growing number of affluent consumers across Asia.
In March, Hilco Consumer Capital joined Hollywood film producer Harvey Weinstein to buy the Halston fashion brand, whose clients once included Elizabeth Taylor and Andy Warhol.
Last year, Change Capital bought German fashion brand Jil Sander from Prada.
Although Valentino is Permira's first foray into the fashion industry, it has experience building branded goods in other sectors, such as Ferretti Yachts and Birds Eye frozen foods.
Permira, whose biggest investor is SVG Capital, owns retailers New Look in Britain and Spain's Cortefiel.
Same Price for More Shares
Permira is to pay 35 euros ($48.28) a share plus the dividend for 2006 results equal to 0.65 euro per share for the stake from International Capital Growth (ICG), a holding company of the Marzotto family, which spun off Valentino in 2005.
Permira said it would pay the same price to other shareholders willing to sell out of the group.
It and Carlyle had also been in talks with Canova Partecipazioni, owner of 19%. Canova was not immediately available for comment.
Valentino shares resumed trading on Wednesday after a two-day suspension, falling 2.22% to 34.4 euros. They hit a record 35.51 euros on Friday when Valentino confirmed reports that it been contacted by private equity firms.
Stefano Marzotto, who owns the Tidus holding with his brothers, told Reuters on Tuesday they had also been approached for their 12.42% stake but had yet to get a firm offer.
"Obviously there was a lack of a unanimous agreement among the various shareholders," said one analyst. "The group has been, in my opinion, well managed and did not need the support of a private equity firm to develop.
"If it's true that the logic of a fund of this kind is financial rather than industrial, I think the hidden value that Permira could look for in Valentino would come from a break-up, for example the sale of Hugo Boss," she added.
Permira declined to comment on any plans for the brand in part because its stake does not give it control of the company.