Golden parachute waits as Gucci weighs up rival bids

THE STRUGGLE for control of luxury goods maker Gucci is expected to reach fever pitch later today as the company's supervisory board meets in Amsterdam to discuss whether it should accept LVMH's $5bn (pounds 3bn) takeover bid.

Gucci chief executive Domenico De Sole and his chief designer Tom Ford stand to collect gigantic "golden parachute" packages if they choose to leave the company. Mr De Sole's severance package is estimated at $20m, but there has been speculation that if his options are triggered and all other benefits are taken into consideration, the final figure could be nearer $100m. A Gucci spokesman said yesterday that such speculation was absurd and "20 per cent of the higher figure would be nearer the mark".

Others say, however, that the $20m figure is merely a severance package. Under Italian law details of De Sole's contract are shrouded in secrecy.

Bernard Arnault, chairman of LVMH, has been forced to up his bid for 35 per cent of Gucci to 100 per cent to stop Francois Pinault, the French billionaire, taking a 40 per cent stake for $2.9bn, or $75 a share.

Mr Arnault said he was "sure" his bid would succeed because the money he is offering is "exactly the amount asked for by De Sole when he discussed the hypothesis". He did not think Pinault-Printemps-Redoute, the French retail giant, or "anyone else" would be ready to top his offer.

If the LVMH offer is rejected, LVMH plans to ask the courts in Amsterdam, where Gucci is listed, to freeze or halt PPR's agreement with Gucci and suspend all members of Gucci's supervisory board and place an independent person in charge of the company on Monday.

The issue of 39 million Gucci shares to PPR on Friday gives it twice as many shares as LVMH. Sources close to Mr Arnault believe that Adrian Bellamy, Gucci's chairman, will encourage the board to accept the LVMH offer, at $85 a share, valuing Gucci at $5.07bn.

From the beginning, say LVMH sources, Mr De Sole wanted it to take a 100 per cent stake in the company. It is thought that Mr Pinault was encouraged to become involved in order to put pressure on Mr Arnault to make a counter offer at a higher price. But according to Gucci sources, the company's board has already approved the transaction of PPR.

Cedric Magnelia, a broker at CSFB, is advising key shareholders in Gucci, Templeton and Scudder, that "at this price it is LVMH's company". The trouble is that PPR's acquisition of 40 per cent of Gucci is a done deal. "The board has a fiduciary duty to act in the best interests of shareholders," said Mr Magnelia. "If they decide to accept the LVMH offer, they have to nullify the PPR deal which is already a fait accompli and could therefore be legally difficult. To get it through the courts, the board would have to recommend that they have a sure offer, it is at a premium to the value of the company and it should be accepted."

The Italian fashion house offers good potential to shareholders. Mr De Sole, an Italian educated at Harvard Law School, has turned it around since being appointed chief executive in 1994. He took the company public the following year, after bringing in Mr Ford as creative director. The two embarked on a successful three-year drive to boost profits and regain control of the brand, which had been degraded through over-use

In purely financial terms, their success has been staggering: from turnover of $260m in 1994 to $1bn last year. Net profits rose in the same period from $17m in 1993 to $195m last year, a feat made even more remarkable given the damaging effect of the Asian crisis on the luxury goods sector.

It has always been part of Mr De Sole's and Mr Ford's strategy to change Gucci from a single to a multi-brand luxury goods group. But Mr De Sole opposed LVMH's 34 per cent stake in the company, which he saw as creeping control without forking out a premium. "Having our principal competitor all over us was not a comfortable experience," said a Gucci insider.

LVMH, which owns a range of companies from Louis Vuitton luggage to Moet & Chandon champagnes, has suffered much more from the slump in the world economy. Its strategy has been to focus on regaining control of its distribution. To that end, LVMH bought 61 per cent of DFS Group, a 150-store chain of duty-free shops; Sephora, a European cosmetics chain; and Marie-Jeanne Godard, a 75-store French perfume chain.

The company was criticised for over-paying for DFS as the Asian economies went into crisis. But Mr Arnault believes that as Asia recovers, the $2.47bn deal will be seen as visionary.

WAR WAGED WITH HANDBAGS, PAGE 3

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