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De Sole’s Moment of Calm

MILAN — Since he became chairman and ceo of Gucci America in 1984, Domenico De Sole has battled his share of adversaries — Maurizio Gucci, Patrizio Bertelli and Bernard Arnault — to name a few. <br><br>"Make my day," became his...

MILAN — Since he became chairman and ceo of Gucci America in 1984, Domenico De Sole has battled his share of adversaries — Maurizio Gucci, Patrizio Bertelli and Bernard Arnault — to name a few.

“Make my day,” became his mantra the moment Arnault began his hostile takeover of Gucci in 1999. But contrary to rumors rattling around Europe, De Sole insists he isn’t locked in conflict with PPR owner François Pinault or PPR chief executive Serge Weinberg.

“If PPR owns 100 percent of the company, they will do whatever they want, and that’s only right,” said De Sole, referring to PPR’s possible takeover of Gucci next year. “But it doesn’t mean necessarily that Tom and I have to run. We have a very strong emotional and professional attachment to the company and its employees. We’ve been here since day one, and we’ve hired everyone. As long as we have our operating autonomy, we have a long-term commitment to the company. We would love to stay.”

In other words, De Sole will stay if PPR maintains the status quo. “And the status quo means we continue to report to a serious, blue-chip board of directors and a very competent supervisory board. And we continue to operate with tremendous discipline,” said De Sole during an interview with WWD at Gucci’s new slick — but spartan — offices at 12 via Montenapoleone.

No formal contract negotiations have begun yet. “There’s plenty of time to talk — and we’ll talk at the appropriate time,” De Sole added.

Asked if he had any inkling that PPR was planning to take away his and Ford’s power if it comes to own 100 percent of Gucci next year, he said: “Not that I know of. There’s been no indication of that. The only indication is that the situation will continue as is. PPR have been excellent strategic partners, very involved and very supportive of our acquisitions. They’re not involved in the business on a day-to-day basis, but they are members of the board. Whenever I have asked Serge Weinberg for something in the past, he has bent over backwards to be helpful.”

Weinberg appears to be speaking De Sole’s language. “I do not intend to manage Gucci myself,” he told a group of about 100 equities analysts in London last month. It was the first time that PPR and Gucci held a joint analyst presentation, and Weinberg was referring to PPR’s possible future ownership of Gucci.

De Sole called his relationship with Weinberg solid. “The talk that we hate one another is just silly. The press made it up. Don’t forget that this is a man whom I have negotiated very hard with in the past when we were hammering out the settlement with PPR and LVMH. I talk to him, not every day, but we have an excellent relationship with PPR and our board members.”

Pinault, he said, has never been directly involved in Gucci. “I see him every few months,” De Sole said. “We shake hands. The relationship is cordial.”

De Sole also denied that he and Ford were plotting to exit Gucci and set up a business together. “I read somewhere that we had some secret plan to do something — and that’s just not true.”

Instead, De Sole said he’s going do his best over the next 12 months to ensure that PPR’s put on Gucci stock doesn’t happen.

“PPR must honor their promise, and they will. But from day one, everybody —PPR included — agreed we should try to avoid the put on the shares. At the time the deal was made —before Sept. 11 —everyone felt the stock would be way, way above the put price. Tom and I have a ton of share options with strike prices at $128 and $103.

“Our hope is still to avoid the put. Our wish is that Gucci remains a public company,” said De Sole. He added he hopes by next year Gucci’s share price will be high enough that shareholders won’t be tempted to sell.

“That’s going to depend on two things: the performance of the group and the general economy. A year can be a short time or a very long time. In 1991, business was tough during the two months of the war, but then it bounced back rapidly. Right now, one thing is for sure: There is going to be no pickup until the situation of war is settled. We either go to war or call it off. The situation of uncertainty is terrible for business. Right now, we have all the negatives of the war — without having the war.”

As reported, Gucci slashed its full-year earnings per share target by 23 percent, citing slower sales in November. Fully diluted EPS for 2002 should be at least $2.02 compared with previous guidance of $2.63. The company also cut its 2002 revenue target saying group sales should come between $2.53 billion and $2.63 billion, compared with a forecast of $2.63 billion.

Since September 2001, Gucci’s share price has been little affected by news such as this precisely because of PPR’s promised tender offer. That means De Sole and Gucci’s management team will have to work that much harder over the next year in order to boost the stock’s true price over $101.50, the price of PPR’s put option.

Many analysts agree that Gucci shares, which have been trading between $92 and $97, would be worth about 23 percent less if they were not underpinned by PPR’s put. On Friday, the shares closed down practically flat at $94. All figures are converted from the Euro at current exchange.

At the moment, De Sole appears to be fully focused on the job in front of him – rebuilding companies he already controls, rather than looking to buy more.

There are no more acquisitions in the works — at least for now. “We’ve acquired a lot of companies in a very short time: We went from one brand to nine brands overnight and our priority is to turn around what we’ve purchased. We are repositioning those brands under very difficult circumstances. But that’s life.

“We had a difficult quarter last year, but we’re not going to do anything that will hurt the growth of the brands in the long term. We’re not slashing prices and we’re not selling cheap trinkets. We have great brands with great names and we’re going to stay the course.”

De Sole said every area of Gucci’s business has been a victim of cost-cutting. “I’m very guarded right now with budgets. I’m being very conservative and seeing what happens with the war.”

He added he was confident that the Gucci division would rebound. “Gucci growth will resume. The store was mobbed over the weekend. Look at what happened after the Asian crisis. We just have to stay calm, and growth will continue. It’s just a difficult moment.”

Retirement doesn’t appear to be in the near future either. “At some point I’ll retire, but there’s no urgency for me to do so. At the beginning of 2005, I will have been here for 10 years. I realize that at some point I know I’ve got to go.”