PAPER PRESENTATION FOR MEGERS

ACQUISITION & RESTRUCTURING

“BATTLE BETWEEN LVMH & GUCCI”

CHAITRA.B

1PI09MBA19
COMPANY PROFILE:

LVMH:
The world leader in luxury, LVMH Moët Hennessy - Louis Vuitton possesses a unique portfolio
of over 60 prestigious brands. The Group is active in five different sectors:

Wines & Spirits

Fashion & Leather Goods

Perfumes & Cosmetics

Watches & Jewelry

Selective retailing

Today, more than 70,000 employees, 74% of whom are based outside France, share the
Group's values. Besides its community action for human development - for example LVMH
House and the LVMH-ESSEC Chair - LVMH carries out a number of initiatives through its
commitment to protecting the environment. Faithful to its vocation as a patron, the Group is
also involved in culture and heritage, humanitarian action, education and supporting young
artists and designers.

MISSION & VALUES:

The mission of the LVMH group is to represent the most refined qualities of Western "Art de
Vivre" around the world. LVMH must continue to be synonymous with both elegance and
creativity. Our products, and the cultural values they embody, blend tradition and innovation,
and kindle dream and fantasy.

In view of this mission, five priorities reflect the fundamental values shared by all Group
stakeholders:

- Be creative and innovate

- Aim for product excellence

- Bolster the image of our brands with passionate determination

- Act as entrepreneurs

- Strive to be the best in all we do

Be creative and innovate. Group companies are determined to nurture and grow their creative
resources. Their long-term success is rooted in a combination of artistic creativity and technological
innovation: they have always been and always will be creators.

Their ability to attract the best creative talents, to empower them to create leading-edge designs is the
lifeblood of our Group. The same goes for technological innovation. The success of the companies' new
products - particularly in cosmetics - rests squarely with research & development teams. This dual value-
creativity/innovation - is a priority for all companies. It is the foundation of their continued success.
Group companies pay the closest attention to every detail and ensure the utter perfection of their
products. They symbolize the nobility and perfection of traditional craftsmanship. Each and every one of
the objects their customers buy and use exemplifies our brands' tradition of impeccable quality. Never
should Group companies disappoint, but rather continue to surprise their customers with the quality,
endurance, and finish of their products. They never compromise when it comes to product quality. Their
search for excellence go well beyond the simple quality of their products: it encompasses the layout and
location of our stores, the display of the items they offer, their ability to make their customers feel
welcome as soon as they enter our stores... All around them, their clients see nothing but quality.
Bolster the image of our brands with passionate Group brands enjoy exceptional reputation. This would
not amount to much, and could not be sustained, if was not backed by the creative superiority and
extreme quality of their products. However, without this aura, this extra dimension that somewhat
defies logic, this force of expression that transcends reality, the sublime that is the stuff of our dreams,
Dior would not be Dior, Louis Vuitton would not be Louis Vuitton, Moët would not be Moët... The power
of the companies' brands is part of LVMH's heritage. It took years and even decades to build their image.
They are an asset that is both priceless and irreplaceable.

Therefore, Group companies exercise stringent control over every minute detail of their brands' image.
In each of the elements of their communications with the public (announcements, speeches, messages,
etc.), it is the brand that speaks. Each message must do right by the brand. In this area as well, there is
absolutely no room for compromise.

Act as entrepreneurs:
The Group's organizational structure is decentralized, which fosters efficiency, productivity, and
creativity.This type of organization is highly motivating and dynamic. It encourages individual initiative
and offers real responsibilities - sometimes early on in one's career. It requires highly entrepreneurial
executive teams in each company.This entrepreneurial spirit requires a healthy dose of common sense
from managers, as well as hard work, pragmatism, efficiency, and the ability to motivate people in the
pursuit of ambitious goals. One needs to share and enjoy this entrepreneurial spirit to - one day -
manage a subsidiary or company of the LVMH group.

GUCCI:
Gucci Group is one of the world’s leading multi-brand luxury companies with a portfolio of
premier brands. Gucci, Bottega Veneta and Yves Saint Laurent are the Group’s flagship brands.
They pave the way for younger edgier desirable brands with a strong potential (Balenciaga,
Alexander McQueen and Stella McCartney) and two well established specialised brands like
Boucheron and Sergio Rossi. Gucci Group’s competitors in the Luxury Goods market include
multi-brands and multiproducts groups, high-end luxury goods and ready-to-wear companies,
along with jewellery and watch companies as well as groups whose origins are in fine leather
goods and shoes manufacturing.

Bernard Arnault ,heads The House of Gucci, better known simply as Gucci ,is an Italian fashion and
leather goods label, part of the Gucci Group, which is owned by French company Pinault-Printemps-
Redoute (PPR). Gucci was founded by Guccio Gucci in Florence in 1921.

Gucci generated circa €2.2 billion worldwide of revenue in 2008 according to Business Week magazine
and climbed to 41st position in the magazine's annual 2009 "Top Global 100 Brands" chart created by
Inter brand.[2] Gucci is also the biggest-selling Italian brand in the world.[2] Gucci operates about 278
directly operated stores worldwide (as of September 2009) and it wholesales its products through
franchisees and upscale department storeGucci was founded in 1921 by Guccio Gucci. In 1938, Gucci
expanded and a boutique was opened in Rome. Guccio was responsible for designing many of the
company's products. In 1947, Gucci introduced the Bamboo handle handbag, which is still a company
mainstay. During the 1950s, Gucci also developed the trademark striped webbing, which was derived
from the saddle girth, and the suede moccasin with a metal horse bit.

After Guccio's death in 1953, Aldo {Guccio’s son) helped lead the company to a position of International
prominence, opening the company’s first boutique in New York. Rodolfo initially tried to start an acting
career as a matinee idol but soon returned to help direct the company. Even in Gucci’s fledgling years,
the family was notorious for its ferocious infighting. Disputes regarding inheritances, stock holdings, and
day-to-day operations of the stores often divided the family and led to alliances. Gucci expanded
overseas, board meetings about the company’s future often ended with tempers flaring and luggage and
purses flying. Gucci targeted the Far East for further expansion in the late 1960s, opening stores in Hong
Kong and Tokyo.

Gucci remained one of the premier luxury goods establishments in the world until the late 1970s, when
a series of disastrous business decisions and family quarrels brought the company to the verge of
bankruptcy. At the time, brothers Aldo and Rodolfo controlled equal 50% shares of the company,
though Rodolfo contributed less to the company than Aldo and his sons did. Aldo’s grandson Uberto
Gucci to join the family company where in the 1984 takes the leads as Vice President in the GUCCI
PARFUMES BRANCH. In 1979, Aldo developed the Gucci Accessories Collection, or GAC, intended to
bolster the sales for the Gucci Perfumes sector, which his sons controlled. GAC consisted of small
accessories, such as cosmetic bags, lighters, and pens, which were priced at considerably lower points
than the other items in the company’s accessories catalogue. Aldo relegated control of Perfumes to his
son Roberto in an effort to weaken Rodolfo’s control of the overall operations of the company.

Though the Gucci Accessories Collection was well received, it proved to be the force that brought the
Gucci dynasty crashing down. Within a few years, the Perfumes division began outselling the Accessories
division. The newly-founded wholesaling business had brought the once-exclusive brand to over a
thousand stores in the United States alone with the GAC line, deteriorating the brand’s standing with
fashionable customers. "In the 1960s and 1970s," writes Vanity Fair editor Graydon Carter, "Gucci had
been at the pinnacle of chic, thanks to icons such as Audrey Hepburn, Grace Kelly, and Jacqueline
Onassis. But by the 1980s, Gucci had lost its appeal, becoming a tacky airport brand."

Soon, cheap knockoffs of Gucci wares had appeared on the market, further tarnishing the Gucci name.
Meanwhile, infighting was taking its toll on the operations of the company back in Italy: Rodolfo and
Aldo squabbled over the Perfumes division, of which Rodolfo controlled a meager 20% stake.
Meanwhile, when Paolo Gucci, Aldo's son, proposed a cheaper version of the brand called 'Gucci Plus' in
1983 he fell out with the family. There was a boardroom quarrel that ended in a fistfight, and Paolo was
reportedly knocked senseless by a telephone answering machine in the hand of one of his brothers. In
return he reported his own father for tax evasion to the United States revenue, and Aldo was convicted
and imprisoned on the testimony of his own son. By now, the outrageous headlines of gossip magazines
generated as much publicity for Gucci as its designs.

Rodolfo’s death in 1983 caused a major shakeup in the company when he left his 50% stake in Gucci to
his son, Maurizio Gucci. Maurizio allied with Aldo’s son Paolo to gain control of the Board of Directors
and established the Gucci Licensing division in the Netherlands for this purpose. Following the decision,
the rest of the family left the company except for Aldo Grandson Uberto that was the only young Gucci
generation involved in the family business. Maurizio sought to bury the fighting that had torn the
company and his family apart and turned to talent outside of the company for Gucci’s future. A
turnaround of the company devised in the late 1980s made Gucci one of the world's most influential
fashion houses[citation needed] and a highly profitable business operation. In October 1995 Gucci went
public and had its first initial public offering on the AMEX and NYSE for $22 per share. November 1997
also proved to be a successful year as Gucci acquired a watch licensee, Severin-Montres, and renamed it
Gucci Timepieces. The firm was named "European Company of the Year 1998" by the European Business
Press Federation for its economic and financial performance, strategic vision as well as management
quality. Gucci world offices and headquarters are in Florence, Milan, Paris, London, Hong Kong, Japan
and New York. PPR headquarters are in Paris. The case gives a detailed account of the dispute between
two of the world's leading luxury good companies, Gucci and LVMH. The case examines how Gucci
managed to thwart the takeover efforts of its rival LVMH.
PINAULT-PRINTEMPS-REDOUTE[PPR]:
.

PPR is a French multinational holding company specializing in retail shops and luxury brands.
The company was founded in 1963 by the businessman François Pinault and is now run by his
son François-Henri Pinault. It is quoted on Euronext Paris and is a constituent of the CAC 40
index. It was originally called Pinault-Printemps-Redoute, but changed its name on 18 May
2005 to simply PPR. On June 20, 2006, PPR announced that it had entered into exclusive
negotiations pertaining to the sale of France Printemps after receiving a joint offer from
RREEF and Borletti Group for €1.075 billion.

Subsidiaries as of 2010 PPR's main subsidiaries include:

* The Gucci Group which owns the luxury brands Gucci, Balenciaga, Yves Saint Laurent, Sergio
Rossi, Boucheron, Bottega Veneta, Alexander McQueen (50%), and Stella McCartney (50%).

* Redcats - mail order retailer which operates La Redoute, Ellos, Empire, Redcats USA,
Cyrillus, Vertbaudet, Somewhere, Daxon, Edmée, Celaia, La Maison de Valérie, Josefssons

* RedcatsUSA - mail order and store retailer which operates Jessica London, Brylane Home,
Woman Within, OneStopPlus.com, Roaman's, Kingsize Direct, The Sportsman's Guide, The
Golf Warehouse, Bargain Catalog Outlet, Avenue Magazine

* fnac - book and CD retailer in France, Switzerland, Belgium, Greece, Spain, Portugal, Italy
and Brazil.

* Conforama - household furnishing retailer

* Puma has about 65% of its stock owned by the PPR group.

Key Dates:

1865: Jules Jaluzot opens Au Printemps.

1881: A fire destroys two-thirds of the store; Jaluzot turns the business into a limited
partnership called Jaluzot & Cie.

1931: The first Prisunic store opens in Paris.

1972: Au Printemps S.A. is established.

1987: The Company launches its bid for La Redoute S.A.

1992: Francois Pinault's Groupe Pinault acquires a controlling (two-thirds) stake in Printemps.

1994: The companies merge as Pinault-Printemps-Redoute S.A. after Printemps acquires the
remaining 46 percent of Redoute.

1995: Serge Weinberg takes over as CEO.

2000: A 42 percent stake in Gucci Group N.V. is acquired.

2004: The Company’s stake in Gucci increases to 99.4 percent.

2005: Francois Henri Pinault is named Weinberg's successor; the company changes its name
to PPR S.A.
BATTLE OF LVMH & GUCCI:
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, 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, 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."
Background Note
Gucci's history goes back to 1923, when Gucci Guccio started selling expensive leather goods in
Florence, Italy. By 2001, the Gucci Group had emerged as one of the world's leading multi-brand luxury
goods companies. The company designed, produced and distributed high-quality personal luxury goods,
including ready to wear garments, handbags, luggage, small leather goods, shoes, timepieces, jewellery,
ties and scarves, perfume, cosmetics and skincare products. Some of its important brands were Gucci,
Yves Saint Laurent, Sergio Rossi and Boucheron The group directly operated stores in major markets
throughout the world and also sold their products through franchise stores, duty-free boutiques and
leading department and specialty stores. De Sole had joined Gucci in 1982 and quickly moved up the
ranks, becoming the President of Gucci US. In the early 1980s, around 50% of the company's stock was
owned by an Arab company, Investcorp. During the 1970s and 1980s, the Gucci label was seen on
almost every imaginable product: scotch, leatherwear, key chains, watches, T-shirts, etc. Also, the
company was spending more than $ 4 million a year to combat a flood of fake Gucci merchandise.
In 1990, Gucci hired Tom Ford (Ford), an actor-model with a degree in interior architecture and some
experience in fashion design for its designing needs. By 1993, Gucci was on the verge of bankruptcy. In
1994, it was reported that the company was offered to Arnault for $ 400 million, but he backed off at
the last minute. Investcorp then bought the remaining 50% stake in a desperate effort to recoup its
investment. De Sole and Ford then began working towards canceling Gucci's numerous licensing
agreements and went on to build its image as a premier luxury brand. Though initially De Sole had
reservations regarding Ford's competence, over the years, Ford emerged as the single most important
factor behind Gucci's success...
The Battle for Gucci:
LVMH had begun stalking Gucci since the beginning of January 1999 by acquiring more than
5% of its shares. By the end of January 1999, LVMH's stake in Gucci had increased to 34%.On
January 27th, 1999, Arnault arranged a meeting with De Sole, at which he proposed that, since
he was now one of Gucci's largest shareholders, he be allowed to name a director to its board. De
Sole however believed that Arnault's people should not be put on the Gucci board, since they
were from the rival fashion house Louis Vuitton.De Sole could not afford to let them have access
to inside information regarding store space, publicity, and designers. De Sole alleged that
Arnault was plotting a 'creeping takeover' by gradually buying enough shares to dominate
Gucci's board. De Sole then asked Arnault to buy the remaining shares. LVMH had 9.6 percent
of Gucci stock, having snapped up the stake that Prada, another Italian house, had bought in the
summer of 1998. When it filed its first 13D ten days after the calls to Gucci, LVMH held a 26.6
percent stake, with purchases of ever-larger tranches at ever-increasing prices. They ranged from
100,000 shares purchased on January 5 at $55.84, to 631,000 shares bought on January 12 at
$68.87 per share. By January 25, LVMH stood looming over its target with a total of 34.4
percent. Not only did Gucci have no defenses--save the two it would use later on--but also the
Netherlands does not require a full tender offer for all shares of acquirers who cross a given
threshold, as is required in Britain, Italy, and France.

LVMH said publicly and privately that there would be no changes to management, and that it
had no desire to take over Gucci, but it did demand three seats on Gucci's eight-person
supervisory board. Gucci, alarmed at the prospect of a competitor owning so much of its stock
and worried for its minority shareholders, urged LVMH to make an offer for all Gucci shares.
LVMH refused. Gucci asked for a standstill agreement. By February 16 advised by Martin van
Olffen of Amsterdam's De Brauw Blackstone Westbroek and Scott Simpson of Skadden's
Canary Wharf office, Gucci sent over a term sheet for LVMH's approval, released the next day,
which guaranteed Gucci's independence and limited LVMH's ownership stake. A letter from
LVMH CEO François Arnault stated that his company would agree "to preserve the
independence of Gucci's management" and that "all commercial proposals by LVMH Group
companies to Gucci . . . would be accepted or rejected by Gucci on the basis of its best interest."

Gucci issued a press release stating that it had granted an option to a foundation under its control,
the Stichting Belangen Werknemers, to purchase 37 million newly issued shares. As part of this
employee stock-option plan, or ESOP, Gucci said it had just--at company expense--issued to the
foundation a total of 20,154,985 shares. That was the exact number of shares now owned by
LVMH. At a stroke, LVMH found its 34.4 percent stake diluted to 25 percent of the company.
Moreover, should LVMH increase its stake, Gucci said it would issue more stock to the ESOP on
a share-per-share basis. Because it had none of the other traditional Dutch defenses in place, this
was one of the two defenses it had left to it under Dutch law. In 1995, the general meeting of
shareholders had granted to the supervisory board a five-year right to issue more of its own stock
to a separate legal entity under its control. The target had made a no-interest loan to the ESOP to
finance the share purchase. The ESOP would get dividends on the stock but would use that
money to pay down the principal, so that the ESOP would not reduce earnings per share or affect
Gucci's balance sheet. They were not additional capital, but additional voting rights. Says Mr.
Storm: "The stated intention of the ESOP shares was to neutralize the voting rights of LVMH's
shares in Gucci."

Gucci had a rationale for its move. Its management insisted that it was always amenable to a
tender offer for all shares, and was only trying to prevent an acquirer from taking it over without
making such an offer. Gucci could quickly shut down the ESOP, paying a small premium to
employees. Scott Simpson of Skadden's London office, advisor to the target, explained that all of
the defenses would collapse in the face of a bid for all the stock. That was very important to the
board of Gucci, he said, because the company wanted such a bid to remain feasible. Gucci did
not think of the ESOP or Stitching 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, when it suspected that
Prada might be on the prowl. Gucci general counsel Alan Tuttle--who, along with Gucci CEO de
Sole, had been a partner at Washington, D.C.'s Patton Boggs before joining the company--asked
Skadden's Scott Simpson for advice. Simpson suggested using an ESOP. Gucci's Dutch counsel
De Brauw Blackstone Westbroek examined the plan, pointing out that Dutch corporate law
generally prohibits a company from financing the purchase of its own shares. However, the
Netherlands firm noted, this rule did not apply to ESOPs.
BATTLE OF CONTROL
LVMH had 9.6 percent of Gucci stock, having snapped up the stake that Prada, another Italian house,
had bought in the summer of 1998. When it filed its first 13D ten days after the calls to Gucci, LVMH
held a 26.6 percent stake, with purchases of ever-larger tranches at ever-increasing prices. They ranged
from 100,000 shares purchased on January 5 at $55.84, to 631,000 shares bought on January 12 at
$68.87 per share. By January 25, LVMH stood looming over its target with a total of 34.4 percent. Not
only did Gucci have no defenses--save the two it would use later on--but also the Netherlands does not
require a full tender offer for all shares of acquirers who cross a given threshold, as is required in Britain,
Italy, and France.

LVMH said publicly and privately that there would be no changes to management, and that it had no
desire to take over Gucci, but it did demand three seats on Gucci's eight-person supervisory board.
Gucci, alarmed at the prospect of a competitor owning so much of its stock and worried for its minority
shareholders, urged LVMH to make an offer for all Gucci shares. LVMH refused. Gucci asked for a
standstill agreement. By February 16 advised by Martin van Olffen of Amsterdam's De Brauw Blackstone
Westbroek and Scott Simpson of Skadden's Canary Wharf office, Gucci sent over a term sheet for
LVMH's approval, released the next day, which guaranteed Gucci's independence and limited LVMH's
ownership stake. A letter from LVMH CEO François Arnault stated that his company would agree "to
preserve the independence of Gucci's management" and that "all commercial proposals by LVMH Group
companies to Gucci . . . would be accepted or rejected by Gucci on the basis of its best interest."

Gucci issued a press release stating that it had granted an option to a foundation under its control, the
Stichting Belangen Werknemers, to purchase 37 million newly issued shares. As part of this employee
stock-option plan, or ESOP, Gucci said it had just--at company expense--issued to the foundation a total
of 20,154,985 shares. That was the exact number of shares now owned by LVMH. At a stroke, LVMH
found its 34.4 percent stake diluted to 25 percent of the company. Moreover, should LVMH increase its
stake, Gucci said it would issue more stock to the ESOP on a share-per-share basis.Because it had none
of the other traditional Dutch defenses in place, this was one of the two defenses it had left to it under
Dutch law. In 1995, the general meeting of shareholders had granted to the supervisory board a five-
year right to issue more of its own stock to a separate legal entity under its control. The target had made
a no-interest loan to the ESOP to finance the share purchase. The ESOP would get dividends on the stock
but would use that money to pay down the principal, so that the ESOP would not reduce earnings per
share or affect Gucci's balance sheet. They were not additional capital, but additional voting rights. Says
Mr. Storm: "The stated intention of the ESOP shares was to neutralize the voting rights of LVMH's shares
in Gucci."

Gucci had a rationale for its move. Its management insisted that it was always amenable to a tender
offer for all shares, and was only trying to prevent an acquirer from taking it over without making such
an offer. Gucci could quickly shut down the ESOP, paying a small premium to employees. Scott Simpson
of Skadden's London office, advisor to the target, explained that all of the defenses would collapse in the
face of a bid for all the stock. That was very important to the board of Gucci, he said, because the
company wanted such a bid to remain feasible.
Gucci did not think of the ESOP or Stichting 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, when it suspected that Prada
might be on the prowl. Gucci general counsel Alan Tuttle--who, along with Gucci CEO de Sole, had been
a partner at Washington, D.C.'s Patton Boggs before joining the company--asked Skadden's Scott
Simpson for advice. Simpson suggested using an ESOP. Gucci's Dutch counsel De Brauw Blackstone
Westbroek examined the plan, pointing out that Dutch corporate law generally prohibits a company
from financing the purchase of its own shares. However, the Netherlands firm noted, this rule did not
apply to ESOPs.

VITAL FACTS & COURT PROCEEDS:

The Battle Ends:

One of the longest-running and most contentious battles in the luxury goods business appears to
be coming to an end with today's news that Louis Vuitton Moet Hennessy agreed to sell all its
shares of Gucci by the end of the year.French retailer Pinault-Printemps Redoute (PPR), will buy
Louis Vuitton Moet Hennessy's (LVMH) Gucci shares by the end of the year, increasing its stake
in the company to 53.2% from 42%. Step two of the approximately $1 billion deal will involve
Pinault-Printemps Redoute making a tender offer to buy the rest of Gucci's shares in early 2004.
Gucci, meanwhile, will issue a $7 per share dividend to all non-PPR stockholders by mid-
December.Gucci called in white knight PPR in March 1999, selling away a large chunk of its
stock in order to fend off LVMH by diluting its stake to 20.9%. That set off a string of
contentious public comments and (now-dropped) lawsuits that cast a bright media spotlight on
France's two richest men: LVMH's Bernard Arnault, and Francois Pinault, who controls PPR.

LVMH is a famously acquisitive company, and so nobody was surprised when the firm made a
play for a majority ownership in Gucci. But the company balked -- and is still taking a strong
stance with PPR by expanding its board of directors to ensure independence.

A strong economy and the possibility of a big-dollar buyout, meanwhile, propelled Gucci's
shares upward even more quickly than its net income grew in the late 1990s. With consumer
spending slowing and profits dropping -- operating income for the three months ended April 30
fell more than 30% year over year -- it may be that LVMH thought it stood better odds of taking
the money and running than continuing to fight over its ownership in Gucci. It's getting a nice
return on its investment. So are Gucci stockholders. Generally speaking, however, the merger
game -- especially in the case of investors’ activist and unsolicited buyers -- is a difficult one for
individual investors to play. Not only does corporate intrigue swirl as quickly as stock prices
change, but the factors that influence decision-makers change constantly. In this instance, it
seems a slowing economy made LVMH rethink how much it really wanted to run, or pay for,
Gucci. Owners of the latter still made out well, but that will not always be the case. In the end,
most individuals should focus on the individual merits of each business and leave the Wall Street
stuff to the investment bankers.
In July 2001, followers of the Gucci-LVMH tussle were surprised to see media reports that claimed that
the battle was over. LVMH had agreed to sell its 20% stake in Gucci to PPR for $ 2 billion under a
condition that PPR forfeit voting rights on this stake.PPR bought the LVMH stake at $ 94 per share,
raising its stake in Gucci to 53.2%. As a first step, PPR was to buy half of LVMH's 20% stake for $ 975
million. Then, Gucci was to pay a special dividend of $ 7 per share to all shareholders except PPR in
November 2001. Next, PPR was to launch a full public offer for all Gucci shares at $ 101.50 per share in
march 2004

PPR, Gucci and LVMH also agreed to release all outstanding claims and withdraw all pending litigation.
PPR was planning to finance the deal by issuing equity and convertible bonds. Media reports revealed
that the deal was struck at the behest of Dutch investigators, who urged the three parties to reach an
agreement without seeking legal intervention...