Byline: Miles Socha
Finally, peace broke out as the bitter and complex war over Gucci entered its third year.
The day before airliners struck the World Trade Center and the Pentagon, Pinault-Printemps-Redoute, Gucci’s white knight and major stakeholder, reached a truce with its French rival LVMH Moet Hennessy Louis Vuitton that would see LVMH shed its troublesome 20.6 percent stake in Gucci and PPR launch a public tender offer to all Gucci shareholders in March 2004.
“This is the settlement to end the animosity,” PPR chief executive Serge Weinberg declared. “Now we can concentrate on fortifying our multibrand strategy. This is peace.”
When 2001 opened, however, the outlook resembled a legal minefield for the battling luxury rivals.
After years of heated courtroom battles, LVMH finally convinced a court in Amsterdam to probe Gucci Group’s strategic alliance with PPR. The investigation, to be conducted by three independent Dutch businessmen, would delve into Gucci’s management practices during the period when Gucci handed PPR a 40 percent stake in the company in return for $3 billion in cash earmarked for acquisitions.
Gucci had warned that the probe would damage its image and that LVMH was out to “harass, hinder and discredit” its chief competitor. But LVMH declared victory, saying the probe was the first step toward canceling the PPR transaction.
Meanwhile, other lawsuits were piling up: LVMH was suing Gucci for monetary damages in The Netherlands; Gucci filed complaints with Europe’s anti-trust authorities against LVMH, accusing it of violating competition laws; and both companies pelted each other with criminal defamation suits stemming from statements about stock option packages issued to Gucci chief executive Domenico De Sole and creative director Tom Ford.
Forgot about the contentious stock options? Gucci shareholders didn’t. At the firm’s annual meeting in Amsterdam last June, they complained the company didn’t disclose essential information about the pack of six million share options, of which five million were destined for Ford and De Sole.
De Sole was taken to task by vocal shareholders for not spending Gucci’s $3 billion cash pile fast enough, to which he responded: “Do you want me to spend money just because I have it? We will take all of the time necessary to make the right acquisitions.”
Rumors surfaced several times during the year that LVMH and PPR might be brokering a solution, which periodically sent the shares of all three involved companies spiking. Analysts smiled on the prospect of an end to the acrimony.
Indeed, as the world returned to work after August vacations, word emerged that PPR was in discussions with LVMH to end the conflict. No one held their breath because it wasn’t the first time the three firms appeared to have reached a cease-fire.
In 2000, talks broke down after Gucci and LVMH battled over the conditions by which LVMH was to unload its shares. Not so on Sept. 10, when details of the settlement were trumpeted. PPR paid $94 a share for about 40 percent of LVMH’s 20.6 percent stake — enough to bump its holdings to 50 percent. The price for the tender offer in 2004 was fixed at $101.50 per share.
“I think it’s a win-win situation all around,” De Sole said. “It was critical for Tom and me to ensure that this was equal for everyone.” Weinberg noted that PPR wants Gucci to remain a publicly listed company, with about 30 percent of its stock quoted.
The pact wiped out the myriad lawsuits the parties had filed against one another and halted the probe initiated by the Dutch court.
LVMH said it was content with the agreement. And the sell-off was a boon for the French company: It said it would earn $1.9 billion in cash before the end of the 2001, including the nearly $676 million in capital gains on its Gucci investment.
The battle over Gucci began in March 1999 when Gucci called on PPR to be its white knight during a hostile takeover attempt by LVMH. The cash injection Gucci received allowed it to pursue its multibrand strategy. In 2001, it added Bottega Veneta, Balenciaga and Stella McCartney to its stable, one that already included Yves Saint Laurent, Boucheron, Sergio Rossi, Bedat & Co. and Roger & Gallet.