FOOL PLATE SPECIAL
Gucci Fights Off LVMH

The contentious battle two French billionaires fought over Gucci for more than two years has come to an end. LVMH will sell its interest to Pinault-Printemps Redoute for a nifty profit. While Gucci stockholders will make out well with the deal, the news highlights the challenges individual investors face when playing the mergers and acquisitions game: LVMH chased Gucci doggedly for years, only to cash out once the economy slowed.

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By Dave Marino-Nachison (TMF Braden)
September 10, 2001

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 (Nasdaq: LVMHY) agreed to sell all its shares of Gucci (NYSE: GUC) by the end of the year.

French retailer Pinault-Printemps Redoute (PPR), press reports said, 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 activist investors 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.

That's my Dave Marino-Nachison -- a bit of alright. His stock holdings can be viewed online, as can the Motley Fool's disclosure policy.