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The 30-Month Fight for Gucci
The Final Answer
The final settlement negotiations occurred at the offices of Darrois Villey in Paris (PPR's French counsel), the week after the Labor Day holiday in the U.S. After a dinner of Lebanese food (ordered in at the last minute for a large group on a Sunday night), executives from all three companies gathered to hammer out the final details of the settlement, to review the documents and to agree to the terms of a short joint press release that would precede each company's longer public statements. Strangely, it was the only instance during the entire deal that executives from all three sides found themselves in the same place at the same time. The final clink of glasses, filled with some of LVMH's finest, came late into the night after all the documents were signed, and, in the European tradition, initialed by all sides on every page.
Here is how all the strands of this complicated knot are to be disentangled. LVMH has agreed to cede Gucci to PPR. In the first step, PPR will buy about one-third of LVMH's stake in Gucci for $94 per share, giving PPR more than 50 percent of Gucci. Then, in December, Gucci will pay a special dividend of $7 per share to all non-PPR shareholders, including the shares retained by LVMH. In the final step, PPR has agreed to make an offer in 2004 at a price of $101.50 per share for all shares of Gucci that it does not own, in effect placing a floor price on Gucci's stock. The $101.50 price is roughly the value today of $94 per share, taking into account the payment of the $7 dividend. The settlement agreement and the revised strategic investment agreement has strong contractual protections to ensure that PPR makes the promised offer. For example, if PPR does not make its offer, Gucci will have the right to issue new shares to all its stockholders, diluting the French company's stake back to 42 percent and rescinding PPR's additional rights. PPR can acquire up to 7 percent of Gucci's outstanding shares, which will make sure that there continues to be a strong public float. PPR is clearly betting that Gucci's share price will equal or exceed $101.50 in April 2004, in which case it will not have to buy any additional shares. PPR also gets control of 50 percent of Gucci's supervisory board immediately, and has the right to a majority of the board and to designate the chairman after it completes its offer in 2004.
Next came a discussion over the role of regulators. Advisors to PPR did not think the Dutch securities board had jurisdiction over the arrangement, arguing that PPR's commitment to make its all-shares tender offer in 2004 did not constitute a present offer to buy stock. "The new Dutch Securities Board just wanted a seat at the table," says one advisor. In the end, however, the regulators successfully insisted on an additional guarantee that PPR would indeed come through with its offer so many years from now--although, oddly, they turned to Gucci to supply this guarantee. Gucci is to set up a $230-million letter of credit to benefit minority shareholders (other than LVMH) should PPR fail to make its offer of $101.50 per share. Minority shareholders would then receive a payment of $6.47 per share, the difference between the $87.53 closing price on September 10, when the deal was struck, and $94, the price PPR will now pay for part of LVMH's stake.
All's well that ends well, says Paul Storm: "LVMH will see a profit of 760 million euros; Gucci is no longer under attack; and PPR is certain of full control by 2004."
David Katz sees the deal as one that meets the needs of all three parties, with tangible benefits for Gucci's public shareholders. What's more, he says the battle could become a case study for M&A experts throughout corporate Europe. "With the derailment of Europe's takeover directive, there may be a unique opportunity for companies that are potentially vulnerable to attack or that come under attack, to adopt real defensive measures that protect the rights of all shareholders."
And if it all falls apart? Mr. de Sole certainly made clear his dedication to ensuring that all goes according to plan, with his colorful assertion as to what would happen to PPR executives--and their anatomies--should promises not be kept.
PPR's response was sympathetic amusement and a renewed pledge to fulfill its part of the bargain. Said Serge Weinberg, the chairman of the French white knight: "Domenico is a very sanguine character, but we have a good relationship on the major business issues. There has been a lot of pressure on him on this question of the bid and there is absolutely no question that we will respect our commitments."
And, Mr. Weinberg insisted: "I would like just to reassure everyone that I'm still intact."
"For centuries, hostile battles have been frowned upon in the Netherlands. But now the climate for takeovers will never be the same," says NautaDutilh's Paul Storm, advisor to LVMH.
LVMH had spent $1.4b for its Gucci stake, which had been knocked down from a third to a quarter of target stock. It could not buy any more shares, and its votes were unusable.
Gucci did not think of the ESOP over a few days in the winter of 1999. It had in fact been examining the possibility of such a defense since the previous summer.
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