PARIS — French luxury and retail conglomerate Pinault-Printemps-Redoute is in good financial shape to acquire the Gucci Group shares it doesn’t own when its so-called put comes due next year — even as the total price of the Italian giant surpasses $8 billion — chief executive Serge Weinberg told investors at an annual shareholder’s assembly here Thursday.
Facing heavy debt, which stood at about $6 billion last month (converted from euros at the exchange rate), PPR has been selling many of its non-core holdings in preparation to buy the remainder of Gucci next year. Over the past year, its financial services arm, wood business and office supplies distributor have all been shed, generating some $3.8 billion.
A successful bond issue last week pumped an additional $1 billion into PPR’s balance sheet. As a result, Weinberg said the company is no longer pressed to sell its electronic parts distributor, Rexel.
“We don’t need to sell Rexel to finance the Gucci put,” said Weinberg. “We can wait until market conditions improve and the company is no longer pressed to sell its electronic parts distributor, Rexel.
“We don’t need to sell Rexel to finance the Gucci put,” said Weinberg. “We can wait until market conditions improve and the company restructures to make itself more attractive.”
PPR has engaged in a vast strategic realignment, moving away from its business-to-business activities in favor of its higher-margin retail and luxury activities. Weinberg said that focusing on the “retail client” would remain the group’s main priority.
Meanwhile, he trumpeted luxury as a long-term motor for profit growth, even as the market has suffered in the wake of SARS, the war in Iraq and the threat of terrorism.
He singled out growth at YSL and Bottega Veneta, the latter of which Weinberg said has continued to perform “strongly” despite the world situation.
PPR currently owns 63.28 percent of Gucci and it can acquire as much as 70 percent of the firm on the open market before the end of the year. After that, PPR has committed to paying $101.50 a share for the rest of the company, or an expected total of $3.6 billion.
“When all’s said and done, the price for Gucci will be $8.16 billion,” said Weinberg, adding that the sum represented good value since Yves Saint Laurent, Bottega Veneta, Balenciaga and Boucheron have “incredible potential” for global development.
Weinberg said YSL should turn a profit in 2005.
Overall, PPR said it would begin to slow investments this year after allocating almost $1 billion in 2002 to building brands. About $115 million will be shaved off that sum incrementally over the next two years.
As reported, PPR’s operating income slid 7.7 percent to $2.09 billion last year compared with $2.27 billion in 2001. Net sales fell 1.5 percent to $31.48 billion.
Meanwhile, in related news, Artemis, the holding company through which François Pinault controls PPR, on Thursday said it would launch a $517.5 million bond issue convertible in shares of Bouygues, in which Artemis has a 7.8 percent stake.
Artemis said the issue would lighten its balance sheet and prolong the maturity of its debt.