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New Details Emerge in Donna’s LVMH Deal as Stocks Stabilize

NEW YORK -- After a big day Monday, the stock markets here and in Paris reacted negligibly to LVMH Moet Hennessy Louis Vuitton's proposed acquisition plans for Donna Karan.<BR><BR>As reported, LVMH announced a deal to buy Gabrielle Studio, the...

NEW YORK — After a big day Monday, the stock markets here and in Paris reacted negligibly to LVMH Moet Hennessy Louis Vuitton’s proposed acquisition plans for Donna Karan.

As reported, LVMH announced a deal to buy Gabrielle Studio, the privately held licensor of the Donna Karan and DKNY trademarks, owned by Donna Karan and her husband, Stephan Weiss, for $450 million, and also made a proposal to acquire Donna Karan International for $8.50 a share.

On Tuesday, shares of LVMH went up 1 percent on the Paris Bourse to close at $65.81, after a 4.87 percent increase on Monday. (Dollar figures are converted from euros at current exchange rates.) Donna Karan’s stock, which is traded on the New York Stock Exchange, closed Tuesday at $8.44, down 6 cents, or less than 1 percent, in heavy trading. Karan’s stock shot up 74 percent, to $8.50, on Monday, when news of LVMH’s overtures to the designer were first revealed.

The sale of Gabrielle Studio is contingent upon the expiration of the applicable Hart-Scott-Rodino waiting period and certain other customary conditions. The proposal to acquire DKI is subject to due diligence; a special committee of the company’s board is expected to review the terms of the merger shortly.

According to a Securities and Exchange Commission filing late Tuesday, the parties entered into the Gabrielle Studio Inc. agreement on Friday. That agreement, which was made a part of the filing, specified that if the DKI transaction for the public company is completed within six months of Dec. 15, the purchase price would drop $50 million to $400 million. In addition, if the DKI deal occurs between six and 12 months of Dec. 15, the purchase price would drop by $25 million to $425 million. After Dec. 15, 2001, the price is the full $450 million.

According to Eileen T. Nugent, an attorney at Skadden, Arps, Slate, Meagher & Flom, which represents Gabrielle Studio, the deal was structured to provide an incentive for the transactions to “happen right away.” She added: “The incentive was [also] for LVMH to do the deal for the public company.”

In addition, the agreement said that as long as Karan herself is an employee of the company, she and whoever is chief executive officer will have the right to “propose or veto” the hiring of senior design directors and brand presidents. Karan also has first right to choose the ceo from a list of three candidates provided by LVMH. If she doesn’t make a selection by the appropriate date, then the board of Karma — the name used in the agreement to refer to the company acquired by LVMH — will make the selection. The board will consist of seven members, including Karan, Weiss, the ceo and four designees of LVMH.

The agreement also contains a provision for the purchase of a planned Donna Karan Collection store at 819 Madison Avenue, depending on what happens with the DKI transaction and provided that certain time requirements are met. The store, if acquired, would operate as a DK Collection store.