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Gucci fades on court ruling
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May 27, 1999: 9:48 a.m. ET
Italian fashion house sheds 7% as Dutch decision casts pall on LVMH bid
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LONDON (CNNfn) - Shares of Gucci slumped nearly 7 percent in Amsterdam Thursday after a Dutch court's ruling to uphold its alliance with French retailer Pinault-Printemps Redoute left the Italian fashion house virtually impervious to a takeover bid by archrival LVMH.
The stock was trading at 64.30 euros, down 4.70 euros. The decline steepened after Gucci shares opened 2 percent lower following announcement of the ruling.
The sharp downturn suggested investors were skeptical of claims by company chairman Domenico De Sole of a tentative triumph in his pitched five-month battle with LVMH, the French luxury goods group best known for Dom Perignon champagne, Givenchy perfume, and Louis Vuitton handbags.
A sparkling victory?
The Dutch court refused to order the dismantling of Gucci's alliance with white knight PPR, to whom Gucci recently sold a 42 percent stake in itself for $3 billion, by issuing 39 million new shares.
Gucci had accused LVMH of attempting to pull off a takeover "by stealth" after LVMH built up a 34.4 percent stake in its Italian rival.
By bringing in PPR (PPP), Gucci effectively diluted LVMH's stake to about 20 percent. The move provoked the immediate ire of LVMH, which demanded a probe of Gucci's defense strategy and the dismantlement of its alliance with PPR on grounds that it defrauded minority shareholders.
In a statement following Thursday's decision, LVMH said it intended to appeal the ruling. The company also said it had asked the Enterprise Chamber of the District Court of Amsterdam to annul Gucci's issuance of shares to PPR.
A dead-weight stake?
Unless LVMH can find a way to unravel the PPR-Gucci alliance, analysts said, the French group will be left holding a 20 percent stake in a company that it has no prospects of buying out.
"(LVMH chairman Bernard) Arnault is in a very bad spot," the head of trading at a major French bank told Reuters. "He's got a 20 percent diluted stake he paid too much for. He is unlikely to launch an exchange offer. He will have to sit on it."
LVMH shares were off 2.3 percent, at 259 euros, in Paris as investors weighed the implications of the ruling.
Though the Dutch court denied LVMH's request to undo Gucci's tie-up with PPR, its ruling cut one of the legs off of Gucci's defense by stripping the company of voting rights included in an employee share program.
The ESOP plan would have further diluted LVMH's stake in Gucci to around 12 percent, analysts say.
But Gucci chairman De Sole preferred to stress Thursday the judge's decision to keep his alliance with PPR intact.
"We are very, very pleased with the decision of the court…that upheld the strategic alliance with PPR," De Sole told reporters in Amsterdam after the ruling was handed down.
Gucci also said its board remained open to an $88-per-share bid for the entire company from any suitor. The company also announced plans to dismantle the employee share plan
The saga goes on
The court ruling is the latest twist in a five-month takeover saga that has seen LVMH jockeying for control of its Italian rival, which has refused to consider anything short of an unconditional bid for 100 percent of the company.
LVMH initially insisted it never intended to seek control of Gucci, but that its hand was forced after Gucci drew PPR into the fray.
Gucci rejected LVMH's $85-per-share offer for 100 percent of the company because it apparently contained conditions that Gucci said were either unrealistic or unacceptable - including a demand that Tom Ford, Gucci's creative guru, remain on at Gucci following any takeover.
(Ford told France's Le Monde he would likely leave Gucci in the event LVMH pulled off its takeover quest.)
The battle has underscored the bad blood among the leaders of the companies involved.
Last week, according to The Wall Street Journal, PPR's chief, financier François Pinault, filed a slander suit against LVMH's Arnault for telling a French magazine that PPR was defrauding Gucci's investors. In response, Arnault has filed a countersuit, the newspaper reported Thursday.
--from staff and wire reports
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