GUCCI ASKS COURT TO FORCE THE SALE OF LVMH SHARES
Byline: Samantha Conti
MILAN — Gucci Group has a new message for LVMH Moet Hennessy Louis Vuitton, its bitter rival and gadfly shareholder: Get out.
Gucci on Wednesday asked the Amsterdam District Court to demand that LVMH sell its 20.6 percent stake in the company on the grounds that LVMH is abusing its position as a Gucci shareholder and frustrating its acquisition strategy.
“This conduct, by the largest supplier of luxury leather goods, violates European competition law and interferes with Gucci’s efforts to maximize shareholder value,” Gucci said in a statement Wednesday.
Gucci’s request was part of a counter claim in response to actions brought by LVMH against Gucci in June 1999.
LVMH fired back later in the day with a statement calling Gucci’s management “desperate.” LVMH said it was “absurd for Gucci to assert+that, with 20.6 [percent] of [the] shares and without having nominated a single member of Gucci’s supervisory board, [that] LVMH is exercising any influence whatsoever over Gucci.”
LVMH also asked Gucci to tell its partner and principal shareholder, Pinault-Printemps-Redoute, to launch a public offer at a fair price.
“These are the only circumstances under which LVMH could agree to sell its shares,” the statement said.
Gucci’s move is the latest episode in an ongoing war for control of the Italian-born luxury goods company that’s incorporated in Amsterdam, a war that began in the spring of 1999 when LVMH attempted a hostile takeover of Gucci, and was defeated by Gucci’s white knight, PPR. Gucci welcomed PPR into the group via a capital increase, in exchange for some $3 billion to be spent on acquisitions.
Since then, Gucci and LVMH have exchanged nothing but acrimony, accused one another of outright lies and clocked endless hours in a variety of Dutch courts trying to resolve their differences. Until now, Gucci had wanted LVMH to keep quiet, sell its shares or launch a “full and fair” bid for the company. But LVMH believes it and other minority shareholders were cheated when PPR took a 42 percent stake in the group — without having to launch any full bid — which ultimately diluted LVMH’s holding. Now, LVMH wants Gucci to pay.
In June 1999 and again in March of this year, LVMH asked the Amsterdam District Court to revoke Gucci’s partnership with PPR and, in the event that it did not cancel that alliance, to award damages to LVMH. Those damages, while unspecified, would make up for “the decrease in the value of LVMH’s Gucci shares due to the capital increase and the change of control to PPR.” LVMH has always argued that PPR has effective control of Gucci even though it holds a minority stake — 42 percent in the company.
Although LVMH’s claims were filed months ago, Wednesday was Gucci’s deadline to file any defense or counterclaim with the court.
A Gucci spokesman said the company had no choice but to file the counterclaim: “At this point, LVMH has no plans to launch an outright bid for Gucci, and no plans to sell its stake. They are harassing us legally and we owe it to our partners, shareholders and staff to defend ourselves.”
He added that even though LVMH was a minority shareholder, any Gucci shareholder with at least a 10 percent stake has the right to call extraordinary shareholders’ meetings, place items on the agenda of the annual shareholders’ meetings, nominate candidates for the supervisory board, and sue the company in the Enterprise Chamber of Amsterdam’s Court of Appeals.
He also said that Gucci had “no suggestions” about how and to whom LVMH could sell its stake, but said “a lot of funds would be interested in buying the shares.” Gucci itself could only buy back a limited amount of shares under Dutch law. Due to a standstill agreement that’s valid until 2004, PPR cannot increase its stake in Gucci, unless it makes a full tender offer.
LVMH has argued that selling its 20 million shares would be a tricky affair that would take some time, and that anyone buying from them would certainly want to purchase the stake at a discount to the market. James Lieber, the director of corporate affairs at LVMH said, “If [Gucci chairman Domenico] De Sole wants to get rid of us so badly, why doesn’t he just get PPR to launch a full and fair bid for all Gucci shareholders?”
But Gucci and LVMH have travelled that road before — and to no avail. In June, Gucci, PPR and LVMH had hammered out a two-part deal that would have solved the problem of the LVMH shares. All Gucci shareholders were to be given two chances to sell their shares to PPR.
The first opportunity, which was tailor-made for LVMH, was a $100-per-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. At the time of these talks around June of this year, Gucci stock was trading in the low $90 range. Gucci shares closed at $101.63 Wednesday, down 56 cents, on the New York Stock Exchange.
LVMH balked when it learned that Gucci’s supervisory board was not ready to recommend the $100 offer, believing the price was too low — and that the second option was preferable.
Gucci and PPR stressed there was no discord between the two of them and that the $100 offer was an easy, painless way to solve the problem of the LVMH shares.
After those talks broke down, the three groups clashed openly a few days later at the Gucci annual shareholders’ meeting. “Our request was that the board recommend the first offer,” Lieber said at the time. “As for the second offer, our feeling is that PPR would strike at a time when Gucci’s price was the lowest. Is it responsible or reasonable for Gucci’s supervisory board not to recommend the first offer?”
In the end, the deal went up in smoke.
The Amsterdam District Court feud isn’t the only legal battleground for Gucci and LVMH. As reported in WWD, the Dutch Supreme Court last month annulled the ruling that had sanctioned the partnership between Gucci and PPR, sending it back to the Enterprise Chamber of Amsterdam’s Court of Appeals for reexamination.
LVMH reiterated in its statement Wednesday that it plans to refile its complaint against Gucci with the Enterprise Chamber Court with a view to having Gucci’s capital increase cancelled. The Enterprise Chamber Court’s decision, whether or not to proceed with an investigation into Gucci’s management procedures and determine if the company violated Dutch law in approving the capital increase, is expected to be announced over the next 12 to 18 months.
LVMH said in its statement Wednesday that its lawyers were expecting the Enterprise Chamber Court to cancel the Gucci-PPR alliance.
“This would be in the interests of Gucci, its employees and shareholders, to whom the transfer of control to PPR without a public offer has caused serious damage+.In the event of such a cancellation, LVMH will propose a solution that would enable Gucci to continue to execute its strategy, while remaining entirely independent.”
LVMH has said in the past that it’s not looking to take control of Gucci or make a bid if the PPR deal is unravelled. “We are happy to be a passive investor in a company that is not controlled by any one group.”
Not surprisingly, Gucci, too, believes it will win, and that the Enterprise Chamber Court will uphold its original decision to approve the strategic alliance with PPR.