The Gucci - LVMH Battle

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Case Details:

Case Code : FINC013
Case Length : 7 Pages
Period : 1999-2001
Pub. Date : 2002
Teaching Note : Available
Organization : Gucci, LVMH, PPR
Industry : Consumer Goods & Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Arnault is trying to steal this company."

- Gucci President, Domenico De Sole on LVMH's takeover attempts, in 1999.

The Poison Pill

In March 1999, a $ 3 billion stock deal was announced between luxury goods major Gucci N V and the Pinault-Printemps-Redoute (PPR) group of France.

The news of PPR acquiring a 40% stake in Gucci came as a surprise for Bernard Arnault (Arnault), Chairman of the Moet Hennessy Louis Vuitton (LVMH) group, who had been trying to acquire Gucci through open market stock acquisitions. Gucci announced that it would issue more shares if LVMH tried to further increase its stake in the group. Gucci President Domenico De Sole (De Sole) said that he had the support of Gucci staff, suppliers and independent shareholders to keep LVMH off the board. Earlier, Gucci had approved an employee stock option scheme (ESOP) to counter LVMH's acquisition tactics. Not only did LVMH remain powerless in Gucci despite spending $ 1.4 billion, but its share prices also began sliding on the Paris stock market.

LVMH charged that the sole purpose of Gucci's move was to deprive LVMH of its voting rights. The same day PPR announced its deal with Gucci, it paid $ 1 billion for Sanofi Beaute, the French owner of brands like Yves Saint Laurent cosmetics and perfumes. This was another setback for LVMH as Arnault had been trying to acquire Sanofi.

As a result of these deals, overnight the Gucci/PPR combination became a major competitor for LVMH. LVMH now made a full takeover bid for Gucci at $ 81 a share, $ 6 more than what PPR had paid. At the same time, it dragged Gucci to the court to annul the deal with PPR and replace its board with an independent overseer. The Gucci-LVMH battle took the global fashion industry by surprise. More so, because in 1994, it was Arnault himself, who had turned down an offer to buy Gucci for $ 400 million. However, in just five years the same man had spent $ 1.4 billion in building up a 34% stake in Gucci. A media report said, "How a $ 400 million reject became a highly desirable $ 8 billion company is one of the greatest comeback stories in the fashion business."

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