THE NEXT SALVO: GUCCI SUING LVMH, CHARGING DEFAMATION
Byline: Samantha Conti / Miles Socha
NEW YORK – Accusing LVMH of lies and “trashy, criminal behavior,” Gucci chief Domenico De Sole plans to file suit – together with Tom Ford and Gucci Group – against LVMH Moet Hennessy Louis Vuitton for defamation regarding claims LVMH made about alleged secret stock options.
“Never in my professional career have I witnessed such criminal, fraudulent, anti-competitive behavior,” De Sole told WWD in a telephone interview on Wednesday “LVMH’s allegations are truly, totally and completely false.”
Gucci plans to file the suit within a week.
As reported Tuesday, LVMH has accused Gucci Group of quietly issuing eight million stock options to De Sole, Gucci Group chairman and ceo, and Ford, the group’s creative director, in a bid to sweeten their contracts, and give them a cut in the strategic partnership deal with Pinault Printemps Redoute.
On Wednesday, in response to Gucci’s announcement that it would sue for defamation, LVMH issued a statement of its own, saying Gucci tricked its shareholders into approving a generous stock option plan for Ford and De Sole, and failed to make it clear to shareholders that the options they were asked to approve at their annual meeting in June were mostly earmarked for the two men.
“This failure to disclose such material information is a violation of the most fundamental rules of transparency applicable to a publicly listed company,” LVMH said in its release. “Were it not for LVMH’s intervention, this information would have remained secret.”
PPR was Gucci’s white knight in the hostile takeover attempt by LVMH last year. In March 1999, Gucci issued a 40 percent stake to PPR — in exchange for $3 billion in cash — as part of a strategic agreement aimed at building a world-class luxury goods group. Since then, Gucci, PPR and LVMH have pelted one another with lawsuits and accusations of mismanagement, harassment and underhanded dealings.
In addition to its plans to file the defamation suit in France, Gucci Group outlined details of contracts and stock options of De Sole and Ford. Gucci’s statement, released on Wednesday, aims to prove that De Sole and Ford received a total of five million options long after the deal between Gucci and PPR was approved.
The statement says that in June 1999 — three months after the Gucci-PPR deal was announced and one month after it was upheld by the Enterprise Chamber of Amsterdam’s Court of Appeals — Ford began negotiating his new contract with Gucci. By December, the final contract was ready; it’s valid until 2004 and grants four million options at a variety of strike prices.
Under the terms of his new contract, Ford has the option to buy one million shares at $75; $90; $110 and $135 over the four-year period.
Gucci stock closed at $94.75 Wednesday, off 19 cents, on the New York Stock Exchange.
De Sole’s contract is similar — but not as lucrative. The Gucci chief’s new contract lasts until 2003 and includes a total of one million options at similar strike prices. Gucci has an option to extend De Sole’s contract for an additional year, and if that happens, De Sole would receive an extra 250,000 options.
In the statement, Gucci took pains to point out that shareholders approved the issue of new stock options to top members of the design and management teams at Gucci’s annual meeting in Amsterdam — where it is incorporated — last June. A Gucci spokesman added that the company filed the details of the stock options with the Securities and Exchange Commission on July 1, and that any shareholder could have looked up the information.
LVMH maintains that none of the information publicly available to Gucci shareholders indicates that four million of the options went to Ford. What’s more, the French luxury group takes sharp issue with the timing of the grant options, alleging that shares were granted in violation of Gucci’s own rules that the exercise price has to be equal to or greater than the market price at the time of the grant.
According to its calculations and assuming the options were exercised, Ford received approximately $29 million at the time the options were granted, while De Sole took $8.3 million. The LVMH spokesman said the money came out of Gucci earnings and shareholders weren’t told about it.
In its release, LVMH said it will produce evidence that Gucci agreed to grant the options to Ford and De Sole in June 1999 when the alliance between PPR and Gucci went into effect. In addition, a spokesman for LVMH said the company will file a complaint with the SEC “shortly.”
Asked why LVMH abstained and did not oppose the granting of the six million options at Gucci’s annual meeting in Amsterdam last June, the LVMH spokesman said “we thought [the options] were for everybody, that’s why we didn’t vote against them.”
Gucci pointed out, however, that its June agenda asked shareholders to approve “substantial options to key design and management personnel as part of renewed and extended employment contracts.”
LVMH said Wednesday, “The enormous amount of this compensation, entirely unprecedented for a company of Gucci’s size, is seriously damaging to the interests of Gucci’s minority shareholders.”
Janet Joseph Kloppenburg, equity analyst at Robertson Stephens, said Wednesday that she “didn’t know” if it were true that the compensation, as LVMH alleges, is entirely unprecedented for a company of Gucci’s size.
As for Gucci’s business, she said emphatically, “the business is very solid.” While the Yves St. Laurent business will continue to lag as a major contributor, she expects that to change once the repositioning is completed.
In a recent research note, the analyst wrote, “We continue to recommend purchase based on Gucci’s currently very strong business momentum as well as its global dominance, essentially unmatched brand status and significant growth opportunities.”
As reported, LVMH filed a lawsuit Monday with the Enterprise Chamber of the Amsterdam Court of Appeal that seeks to cancel the Gucci-PPR alliance. It requests that the court investigate mismanagement at Gucci and the circumstances under which it entered into the alliance. LVMH filed its complaint following the Dutch Supreme Court’s decision to throw out an earlier ruling that upheld the Gucci-PPR relationship. The “secret grant of options” was unveiled on Monday as further evidence of mismanagement.
Gucci immediately rejected the allegations and said it would challenge LVMH’s action in the Enterprise Chamber.
The Enterprise Chamber has scheduled a hearing on the matter for Jan. 25 at 10 a.m. At the hearing, the chamber is expected to announce whether or not to investigate the Gucci-PPR alliance.
On Monday, responding to LVMH’s charge of a secret grant of as many as eight million shares, Gucci acknowledged that it granted two separate issues for a total of 7.5 million shares. In Wednesday’s release, Gucci said shareholders authorized stock options for 1.5 million shares at its annual meeting in July 1999, and these were awarded to executives of Gucci, not including Ford and De Sole.
Gucci alleged Wednesday that LVMH pulled the number of eight million shares “out of the air.”
The LVMH spokesman said it based the number on the assumption that De Sole received the same compensation as Ford, and not less. “What’s important is that we were right that [Ford] got four million shares and they didn’t let anyone know,” he said.