MILAN — PPR is catching a break — and Gucci says it’s not shopping, at least for now.
Gucci Group NV said Wednesday it would pay back $1.58 billion, or approximately $16 a share, to shareholders this fall. This will correspondingly reduce the amount Pinault Printemps Redoute will have to pay per share to acquire the remainder of Gucci it doesn’t already own next spring by about $16.
The capital payout must be approved at the group’s annual shareholders’ meeting July 16 in Amsterdam. The resolution will be described in a proxy statement set to be issued June 13.
Dollar figures are converted from euros at current exchange.
PPR owns about 63 percent of Gucci and has agreed to buy the rest for $101.50 a share next March. The payment, taken in accordance with PPR, will reduce the share put price of $101.50, which PPR is committed to offer, to $85.22. PPR can by up to 70 percent of Gucci before the end of the year.
Analysts agreed that PPR benefited the most from this deal. “PPR is the big winner in this,” said a Milan-based analyst. “It doesn’t change anything for shareholders — they’ll just be getting the payment in two separate installments.”
Although a Gucci spokesman said the decision was made following a strategic board meeting on Saturday, market analysts said the strength of the euro could also have been a catalyst for the deal.
“Gucci would say otherwise, but it appears they are taking advantage of the weak dollar,” said a Milan-based analyst.
The bulk of the cash used for the capital return is from PPR’s original 40 percent investment in Gucci for $3.4 billion in 1999. However, a Gucci spokesman pointed out that the remainder has also come from interest and cash flow generated by the group.
Should Gucci shareholders approve the offering, payment on the firm’s Euronext Amsterdam shares is set to begin Oct. 2 and shortly thereafter on the New York Stock Exchange shares.
Gucci also said it would pay a dividend of 59 cents a share from the profits earned in fiscal year 2002.In a statement, Gucci chief Domenico De Sole said the group could sustain the payout because it was not planning further acquisitions.
“We have reviewed our financial position and concluded that our significant net cash holdings are not necessary to develop the group,” said De Sole. The spokesman added that future growth of the group was insured by its various brands, which include Yves Saint Laurent, Bottega Veneta and Alexander McQueen among others.
De Sole said he was confident that Gucci would still have a strong financial position and estimated that the group’s net debt would between $237.2 million and $355.8 million after the payment, on Oct. 2, 2003, and significantly reduced at yearend, while shareholders equity will exceed $3.55 billion.
“This balance sheet…will enable us to finance all the investments needed to develop our brands,” De Sole said.
“It’s a good thing for PPR, first of all because it’s good for all Gucci shareholders as it optimizes Gucci’s balance sheet,” said a PPR spokeswoman.
She noted that the capital return would have “a small positive impact” on PPR’s results because it will “reduce financial costs.” The spokeswoman added that this was a “neutral operation” for the put payment.
In a separate development, spokesmen for Versace and Gucci denied a press report here that De Sole and Gucci’s creative director Tom Ford were headed to Versace. As reported, both De Sole and Ford are engaged in contract negotiations.
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