Gucci & Lvmh: the Battle for Control

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The battle for the takeover of Gucci by LVMH, and efforts by Gucci management to defend against the intended takeover at all costs, is a classic example in the fashion goods industry. The case can be seen as mainly a battle between the two majority stakeholders in Gucci, namely the management of Gucci itself versus the other majority stakeholder LVMH. It can also be seen as the battle between two personalities, De Sole of Gucci and Bernard Arnault of LVMH, each determined to get their own way, regardless of the other minority shareholders.

The newly revitalized and profitable Gucci under the management of Dominico De Sole (President & CEO) and Tom Ford (Creative Director) had reformed the company from a failing entity in the 1970’s and 1980’s to a viable one by the beginning of the 1990’s. Membership had passed from the Gucci family to the Bahraini investment bank, Investcorp in 1993. However, in October 1985, Investcorp divested 49% of its ownership in the company at $22 a share and the rest 6 months later at $48 a share. So ownership was widely dispersed at the time De Sole and Ford began to run the company. It was due to their combined efforts that the company stood revitalized within 5 years of Ford being appointed Creative Director in 1994. In analyst’s opinions, Gucci was a viable enterprise with takeover potential by early 1999.

What started off possible takeover concerns was the 9.5% ownership of Gucci stock by the Italian fashion house Prada. LVMH under its President/CEO Bernard Arnault had already made a bid for Gucci in 1994 but considered the asking price of $350 Million too steep at that time. LVMH was famous for buying low priced but established brand name businesses and making them part of the LVMH empire. In De Sole’s mind, Arnault no doubt had similar intentions for Gucci. Under U.S regulations, LVMH was forced to report its 5% stake in Gucci which it did on Jan 6, 1999. This led to a favorable increase in Gucci share price from $50 to $70...
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