WALL STREET WATCHES AND WONDERS

Byline: Catherine Curan

NEW YORK — A takeover strategy? Prada says no and Gucci says no, but Wall Street isn’t so sure.
Several analysts said Prada’s aggressive purchase of Gucci stock could signal such a game plan.
“When they go from zero to 5 percent, then 9.5 percent in a couple of months, they clearly have more than investment on their mind. They’re interested [in a takeover],” speculated Janet Joseph Kloppenburg, analyst at Banc America Robertson Stephens.
Kloppenburg said she would take a positive view of such a combination. “They’re very compatible and have a lot of the same customers, as well as different customers.”
Kimberly Walin, analyst at Furman Selz, said Prada has indicated it wants to form a greater alliance among Italian luxury goods companies. But “they’ve gone about it in a strange way by not bringing Gucci management in.” She said, “It’s hard to know how hostile their intentions are.”
Walin said that if Prada is planning a takeover, “this is certainly a slow and painful way of doing it,” noting that there is no poison pill in place, so an interested investor could go directly to Gucci’s board with a bid for the whole company.
In a research note, Faye Landes, Solomon Smith Barney, said Prada’s stock purchases may involve more than an investment and may establish some floor for Gucci’s stock. But, she noted, “The deteriorating economic situation in Japan poses considerable near-term risk to Gucci.”
Other analysts agreed the Prada investment may create a new floor for Gucci stock, which has traded as high as 73 7/8 and as low as 28 3/4 over the last 52 weeks.
Gucci closed Tuesday at 52 3/4, up 1 1/8 on the New York Stock Exchange.
“We probably won’t see the lows in the 30s that the stock had last year,” said Kloppenburg. She expects Gucci to earn $3 a share this year, against $2.86 last year, and she believes the stock is a good value.
Walin said Gucci has benefited from better-than-expected first-quarter earnings of 72 cents against 78 cents a year ago. “The stock was undervalued, and this [Prada’s purchases] increases the focus on the long-term value of the company, instead of short-term economic conditions like the weakening of the Japanese yen.”

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