SPECULATION OVER TALKS SPURS PPR, LVMH AND GUCCI STOCKS
Byline: Miles Socha / Samantha Conti
PARIS — Shares in Gucci Group and Pinault-Printemps-Redoute spiked Monday as speculation intensified in Europe that PPR, which owns 42 percent of Gucci, might launch a full bid for the company.
A bid could end the bitter standoff between PPR and LVMH Moet Hennessy Louis Vuitton, which owns 20.6 percent of Gucci. The rival French groups have been sparring in court and in the media over their entanglement for two years.
Shares in Gucci rose 8.1 percent on the Amsterdam Bourse to close at $86.11 on Monday. On the Paris Bourse, shares in PPR rose 7.9 percent to close at $181.38, while LVMH went up 4.7 percent to $50.11. All prices are in dollars converted from the euro at current exchange.
Monday, on the New York Stock Exchange, Gucci closed at $87.50, up $6.50 or 8 percent.
The idea that a full bid by PPR could be near stems from comments last week by Gucci chairman and chief executive officer Domenico de Sole, who reiterated that he would welcome a full bid at the correct price. Those comments, in turn, have fuelled speculation that negotiations might have resumed between PPR and LVMH.
Spokesmen for Gucci, LVMH and PPR declined all comment on Monday.
As of Monday’s closing price, the value of LVMH’s stake in Gucci is about $1.6 billion. Observers said it is unlikely that PPR would use Gucci’s cash pile, which is still around $2.5 billion, to finance a full takeover bid. Analysts have said PPR would prefer to increase its debt or do a share swap, rather than clear out a significant chunk of the money that’s earmarked for acquisitions in building the Gucci luxury group. Last summer, PPR and LVMH, with help from Vivendi chief executive Jean-Marie Messier, had hammered out a two-part deal after two months of intense, high-level talks. All Gucci shareholders were to be given two opportunities to sell their shares to PPR. The first chance, tailor made for LVMH, was a $100-a-share tender offer to take place immediately. The second offer, to take place between 18 months and four years down the road, would have PPR launch a premium offer to Gucci shareholders in order to take full control of the company.
LVMH balked, and the deal unraveled, when it learned that Gucci’s supervisory board was not ready to recommend the $100 offer, believing the price was too low and the second offer was profitable.
Asked at Gucci’s news conference, last Thursday, to report fourth quarter and 2000 earnings, if there were any new talks with LVMH, De Sole replied: “No, not that I’m aware of.”
Analysts, meanwhile, struggled Monday to make sense of the situation. Anne Catherine Galetic, luxury goods analyst at Schroeder Salomon Smith Barney, laid out three possible scenarios.
The first is that PPR would launch a full bid for Gucci at a premium of 20 to 30 percent more than the current market price of about $85. The second would be a custom-made deal brokered between LVMH and PPR, similar to the one proposed last year that would allow LVMH to cash out of Gucci.
The third scenario is what she termed “do nothing,” wherein all parties wait for a decision to be handed down by the Enterprise Chamber of Amsterdam’s Court of Appeals.
This month, the court upheld a request by LVMH to launch an investigation into Gucci’s management practices at the time it formed its strategic alliance with PPR in spring 1999. LVMH has said it would like to see PPR launch a full bid for Gucci, or see the partnership cancelled altogether. It was a custom-made share issue for PPR that diluted LVMH’s initial 34 percent stake in Gucci to its current 20.6 percent.
“As of today, there is no factual evidence to lead anyone to believe that any scenario will win out over the other,” said Galetic. “Investors should not forget this.”
Dorothy Lakner, an analyst with CIBC World Markets Corp. in New York, said the same issues that have in the past thwarted a sale of LVMH’s stake in Gucci still remain. “This has come up a number of times, and any offer that LVMH has made has not been satisfactory to Gucci,” she said.
Since Gucci’s high-end leather goods go head-to-head with Louis Vuitton luxury selection in the market place — just as the firms’ management does in the courts and the media — Lakner described the situation of having a major market opponent own a 20 percent stake as a “serious competitive problem.”
She said, “Given the antagonism between the two top managements, I wouldn’t be optimistic about a resolution…it sounds just like speculation as far as I can see.”
At some point, though, its important for both sides that the dangling stake be resolved, but Lakner cautioned, for Gucci, “It also depends on how it’s resolved. Gucci without Domenico De Sole and Tom Ford is not Gucci.”
Certainly any fresh negotiations between PPR and LVMH would represent a triumph over acrimony — and they would also likely have to start from scratch.
During a hearing last January at the Enterprise Chamber, LVMH disclosed that it was still willing to tender its shares if PPR made a full bid at $100. In court, PPR chief executive Serge Weinberg indicated that offer was no longer on the table.
“We are not against working with all the parties involved and finding solutions to this problem,” he said at the time. “But we have to find new routes.”