War of the Handbags: The Takeover Battle for Gucci Group N.V
53 Pages Posted: 21 Oct 2008
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War of the Handbags: The Takeover Battle for Gucci Group N.V
Abstract
At three o'clock in the morning on September 10, 2001, Thierry Hautillac, a risk arbitrageur, learns of the final agreement between Pinault-Printemps-Redoute SA (“PPR”) and LVMH Moët Hennessy Louis Vuitton SA (“LVMH”). After a contest for control of Gucci lasting over two years, PPR has emerged as the winner. PPR and LVMH have agreed for PPR to buy about half of LVMH's stock in Gucci for $94 per share, for Gucci to pay an extraordinary dividend of $7 per share, and for PPR to give a two and a half year put option with a strike price of $101.50 to the public shareholders in Gucci. The primary task for the student in this case is to recommend a course of action for Hautillac: should he sell his 2% holding of Gucci shares when the market opens, continue to hold his shares, or buy more shares? The student must estimate the risky arbitrage returns from each of these choices. As a basis for this decision, the student must value the terms of payment and consider what the Gucci stock price will do upon the market's open. The student must determine the intrinsic value of Gucci using a DCF model as well as information on peer firms and transactions. The student must consider potential synergies between Gucci and PPR and between Gucci and LVMH. The student must assess the likelihood of a higher bid, using analysis of price changes at earlier events in the contest for clues.
Excerpt
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“War of the Handbags”: The Takeover
Battle for Gucci Group N.V.
At three o'clock in the morning of September 10, 2001, Thierry Hautillac, senior manager of the merger-arbitrage/event-driven portfolio of Geneva-based hedge fund Suisse Financière SA, received a call from his senior analyst that the battle for Gucci Group N.V. had ended. After two and a half years of bitterness and uncertainty, the two titans of European luxury had finally hammered out the details of a deal that would hand over one of the most storied names in haute couture to a French timber, construction, and retailing conglomerate.
Gucci Group N.V.—based in Amsterdam but managed from Florence, where it was founded in 1921—had entered the new millennium as one of the hottest and most successful fashion brands in the world. De Sole, chairman and chief executive, and Tom Ford, creative director, had revitalized a company that had been moribund after years of family squabbling and mismanagement. Under Ford and De Sole's managerial and creative leadership, Gucci underwent a dramatic turnaround, as revenues expanded from under $ 200 million, in 1990, to $ 2.3 billion, in 2000.
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Keywords: securities analysis, mergers acquisitions, discounted cash flow, Risk Return, Arbitrage analysis, stock dividends, stockholder relations, firm valuation
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