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The Cost of Luxury: PPR’s Final Gucci Bill To Approach $9 Billion

With its days as a public company nearly over, Gucci Group will become a wholly owned subsidiary of Pinault-Printemps-Redoute at a cost of close to $9 billion.

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PARIS — Gucci Group’s days as a public company are near an end — at a cost to Pinault-Printemps-Redoute of close to $9 billion.

At the conclusion Thursday of its monthlong tender offer, PPR owned 99.23 percent of Gucci’s shares, setting the stage for the expected delisting of the Italian luxury conglomerate. Gucci is now expected to become a wholly owned subsidiary of PPR.

PPR is extending its tender offer through May 20, as required under Dutch law and as part of the settlement agreement struck in 2001 that saw PPR rival LVMH Moët Hennessy Louis Vuitton sell its Gucci stake left over from its attempt to take over the Italian company in 1999.

Should any shares be outstanding after that, PPR can launch a “squeeze out” of any stragglers.

The financial market has long considered delisting a fait accompli, given that PPR would assume full management control and that Gucci’s supervisory board and two major banks deemed the offer fair and advised minority shareholders to accept it.

At the outset of the offer, PPR owned 67.58 percent of the company and offered $85.52 a share.

In accordance with Dutch law, where Gucci is incorporated, the company held an exceptional shareholders’ meeting in Amsterdam last week to discuss the offer, and the slim turnout spoke to the lack of ambiguity about the stock’s future.

PPR launched its tender offer on April 1 and had not given any indication of its progress until it closed on Thursday. But Gucci’s largest minority shareholder, Credit Agricole SA, indicated early in the offer that it would tender its 8.5 percent stake, which would elevate PPR’s holding beyond 75 percent. Those 8.6 million shares came at a cost of $732 million.

To buy all the 32 percent of Gucci stock it didn’t own at the start of the offer, PPR said the operation would cost about $2.5 billion, raising the final amount it paid for all of Gucci to about $8.78 billion, or 7.2 billion euros.

Meanwhile, in a filing with the U.S. Securities and Exchange Commission, Gucci released some details of its budget for the next few years. Gucci sees revenue growth of 9.3 percent for this year, 12.2 percent in 2005 and 9.6 percent in 2006. Gucci had revenues of $3.18 billion, or 2.59 billion euros, in 2003.
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The filings also spell out how much PPR and Gucci executives stand to gain by cashing in their remaining stock options, as of March 31, at the $85.52 tender price. The top three are: De Sole, $4.2 million; Brian Blake, $2.8 million, and chief financial officer Robert Singer, $1.6 million.

Separately on Thursday, fresh signs emerged of a smooth transition for Gucci. The company confirmed that Renato Ricci, Gucci’s longtime human resources chief, would remain a consultant for one year.

Also Singer, who is exiting along with De Sole, has agreed to be available to provide consulting services to Gucci through the end of 2005.

But while PPR’s purchase of Gucci seemed an anticlimax, a delisting was not always seen as inevitable.

In an interview in 2002, Gucci Group chief executive Domenico De Sole said he would do everything in his power to goose the share price so the PPR put didn’t happen. At the time, the put price was set at $101 a share, but was subsequently reduced when Gucci returned cash to its shareholders, including PPR.

“PPR must honor their promise, and they will,” De Sole said at the time. “But from Day One, everybody — PPR included — agreed we should try to avoid the put on the shares. At the time the deal was made — before Sept. 11 [2001] — everyone felt the stock would be way, way above the put price. Our wish is that Gucci remains a public company.”

But when PPR decided earlier this year not to renew the employment contracts of De Sole and group creative director Tom Ford, it became clear the French group was willing to buy up to 100 percent of the company’s shares.

Over the last year, PPR has been preparing for its foray into luxury by selling off its traditional business-to-business activities to concentrate on luxury and retail.

Elisabeth Jamieson, European retail research analyst at Lehman Brothers in London, said Thursday’s news would likely have little impact on the stock market.

“For the most part, it’s been priced into PPR’s share price,” she said. “There could be a marginal uptick in the share price but nobody’s going to make a lot of money. There was a question mark, but it was mostly expected.”
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Jamieson said she doesn’t expect analysts to modify their forecasts as a result of the tender acceptance, adding that it is likely Gucci will be delisted and made another division of PPR. “If this happens, I would expect less financial information than in the past,” she noted.

PPR stock slipped 0.1 percent to close on Thursday at $102.77, or 87.10 euros on the Paris Bourse.

Gucci went public in November 1995, its shares debuting on the New York and Amsterdam stock exchanges. Gucci originally applied to list shares on the Milan exchange, but market regulator Consob turned down its request. There was speculation that losses at the company — linked to ongoing restructuring efforts — shook Consob’s confidence in Gucci.

Ultimately Gucci triumphed on its market debut, with its share price rallying 22.2 percent on the first day of trading to close at $26.88.

“It was the most exciting thing that ever happened to me in my working life,” De Sole said at the time about the NYSE debut. “There was pandemonium at the booth, and the noise on the floor was incredible.”

The IPO marked the beginning of a new era for Gucci, founded in 1923 by Guccio Gucci. Just a few years earlier, Bahrain-based investment bank Investcorp and Maurizio Gucci were wrestling for control of the Florentine fashion house.

When Investcorp acquired full control of Gucci in late 1993, the firm was financially and operationally crippled and near liquidation. After an emergency rescue plan, which included immediate capital infusions to pay back salaries and suppliers, as well as emergency mediation sessions with angry union leaders, Gucci managed to break even or post a small profit in 1993.

In fact, Gucci’s IPO helped set the stage for one of fashion’s most gripping power plays, when LVMH launched a hostile takeover bid for Gucci in early 1999. In one of the more dramatic developments, Prada helped LVMH chief Bernard Arnault by selling its 10 percent Gucci stake to the French group after De Sole rebuffed Prada chief Patrizio Bertelli’s advances for a partnership.

In March 1999, PPR stepped in as Gucci’s white knight, paying some $3 billion for a 40 percent share in the fashion company. That cash allowed De Sole and Ford to form a multibrand group comprising labels such as Yves Saint Laurent, Balenciaga, Boucheron, Sergio Rossi, Bottega Veneta, Stella McCartney and Alexander McQueen.
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— With contributions from Robert Murphy, Paris

Higher Ground
Gucci's Share Prices Since Its IPO ($U.S.)



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