War waged with Gucci handbags

John Lichfield on a French fight for the Italian fashion house
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The Independent Online
The wood-cutter's son has rounded on the big, bad wolf. Little Red Riding Hood, clad from head to toe in Gucci, had better watch her step, however. The wood-cutter in question may be posing as her saviour, but he is no mean wolf himself.

Francois Pinault, the son of a Breton log merchant, and Bernard Arnault, scion of the Parisian politico-bureaucratic-business establishment, are the fiercest and biggest beasts in the French corporate jungle.

Until Friday morning, their paths had crossed only once and relatively amicably. Now they are going head-to-head, and claw-to-claw, over the ownership of Gucci, the Italian luxury-goods company.

The issue is not simply control of Gucci. In a double swoop on Friday, Mr Pinault made it clear that he intends to challenge the Louis Vuitton- Moet Hennessy (LVMH) group of Mr Arnault on its own territory: the international market for luxury goods.

Mr Arnault had been stalking Gucci for months. On Friday, Mr Pinault's PPR group seized 40 per cent of Gucci for pounds 1.7bn, in the form of an expansion of equity which instantly reduced Mr Arnault's painstakingly acquired share of the upmarket handbag, clothes and shoemaker to 18 per cent (from around 25 per cent). Simultaneously, Mr Pinault's family holding company paid pounds 600m for another long-time Arnault target, the beauty and luxury wing of the Sanofi group - owner of labels such as Yves Saint Laurent, Van Cleef and Arpels and Roger et Gallet.

The intention is to merge the two companies and create a new luxury goods giant which will prove a "pole of attraction" to other smaller, luxury companies and challenge the dominance of LVMH. Mr Pinault promises that Gucci will retain the commercial and artistic autonomy that it would have surrendered if it had been purchased by LVMH. The Breton has a reputation for allowing considerable freedom to his companies - so long as they are successful.

Mr Arnault, 50, son of a wealthy business family, graduate of the best schools and elite colleges, has not given up. "Mr Pinault's triumph will last for only a few hours," he is reported to have growled to his associates. He announced a hostile bid for 100 per cent of Gucci at an undisclosed price somewhere above the $75 (pounds 45) a share paid by Mr Pinault's PPR. Mr Arnault is also challenging the Pinault-Gucci deal in the Dutch courts (although an Italian company, Gucci is listed on the Amsterdam stock exchange). Mr Arnault argues that the deal is unjust because it hands Mr Pinault control of Gucci without giving existing shareholders a penny. The battle is likely to be long and hard.

Things are not supposed to happen this way in France. Hostile takeovers do occur, but cosy arrangements and understandings are more common. Or they used to be. Twelve days ago, the second largest French bank, BNP, made a hostile bid for two of its competitors at once (Societe Generale and Paribas). Now the two most successful and ruthless French businessmen of their generation are slugging it out with Gucci handbags. Something is stirring in the French business forest - Anglo-saxon attitudes are beginning to prevail.

The rise of Francois Pinault, who started with a pounds 10,000 loan in 1962, is in many ways an un-French story. The route to business riches in France is usually through the elite educational establishments and the upper echelons of the civil service. Mr Pinault left school without taking his baccalaureate. He is now possibly the wealthiest man in France with a fortune of pounds 3.5bn, which includes the Printemps and FNAC stores, Christie's auction house, part of TF1 (the biggest French TV company) and the Chateau Latour vineyards.

Mr Pinault told his official biographer that he quit school early because he was teased by richer students for his peasant accent. After his military service, he started a wood-trading company and discovered a short-cut to rapid expansion. He haunted bankruptcy courts and picked up failing businesses, which he asset stripped or turned around. For the rescue of one wood company in the Correze in south western France, he earned the gratitude and the friendship of the local MP, Jacques Chirac.

What drives Mr Pinault? One of his associates, the writer and political fixer, Alain Minc, says he is a "business poet", moved by the beauty of an elegant deal. Others suggest that he has never forgotten the humiliations of his childhood.

There is another pattern in Mr Pinault's dealings which the Gucci top brass might do well to study. On several occasions, he has been invited to intervene as a white knight - as now - by managements fighting off hostile bids. Within months or years, he has dumped the management and installed his own teams. The question remains. Is Mr Pinault the wood- cutter or the wolf?