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LVMH bags Gucci stake
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January 12, 1999: 6:01 a.m. ET
French luxury goods maker to buy Prada's 10% stake in Italian fashion house
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LONDON (CNNfn) - French luxury goods maker LVMH confirmed Tuesday it had agreed to acquire Prada's 9.5 percent stake in Gucci, increasing speculation of a full-blown takeover bid for the Italian fashion group.
Paris-based LVMH, a maker of luxury merchandise ranging from cognac and wines to leather goods, perfume and beauty products, announced last week that it had bought a 5 percent interest in Gucci. Analysts said LVMH is seeking to focus more on luxury goods, to offset poor sales in its battered retail division.
The agreement with Prada effectively raises LVMH's known holding in Gucci to 14.5 percent, though analysts speculated that the actual percentage may be slightly higher.
LVMH said Tuesday it expects to declare its intentions by the end of the week, as required under U.S. stock market regulations.
Shares of LVMH (PMC) were off 2 percent in early Paris trading Tuesday, at 207.10 euros.
Gucci shares, listed in Amsterdam, have gained nearly 50 percent since the original LVMH announcement, while LVMH stock has risen 14 percent. Gucci shares were off 4 percent in Amsterdam Tuesday.
Cedric Magnelia, an analyst with CS First Boston, based in London, estimated LVMH may control up to 25 percent of Gucci. To buy Gucci outright could cost LVMH something in the region of $4 billion.
Analysts say LVMH could finance the purchase by disposing of a $4.27 billion stake in food and drinks group Diageo (DGE), representing 10.9 percent of the British group's shares.
The agreement with Prada comes against a backdrop of a steady erosion in demand for many luxury goods in Asia, where consumers hit by financial turmoil have shied away from more expensive purchases.
Magnelia said the pact with Prada reflects a desire by LVMH to focus on the types of luxury goods in which Gucci specializes. Those include handbags and leather goods, which account for about 55 percent of the company's $975.4 million in annual sales, as well as shoes, ties, scarves and perfume.
"It tilts the portfolio further towards the luxury segment and away from spirits," said Magnelia, noting that luxury goods have tended to benefit from relatively higher growth recently.
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