Gucci: Will The Other Shoe Drop?

Although Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton, insists he isn't out to acquire Italy's Gucci Group (GUC), no one on Wall Street quite believes him. After all, in the past month he has upped LVMH's stake in Gucci from 9% to 34.4%. That has fueled a runup in Gucci's stock, which shot from 48 on Dec. 31 to a high of 74 7/8 on Jan. 8. It has since eased to 69. "This is a coup in the making--a move to pull a creeping takeover," says one Gucci insider. He thinks Arnault will push to raise LVMH's stake to a controlling 51%.

That may not happen if a white knight emerges to make a friendly bid for Gucci, as some pros expect. One of these investors says Gucci Chairman Domenico de Sole has been meeting privately with potential saviors. Among those interested, says this pro, are two upscale U.S. retailers and one London conglomerate.

De Sole declined to say anything about the possibility that another buyer might get into the picture. "While it would be inappropriate for me to comment directly [on such speculation], I am completely aware of my responsibilities to uphold the interests of all shareholders," de Sole told BUSINESS WEEK. "We'll continue to run the company independently in a way that maximizes long-term growth and value for shareholders."

"It seems clear that de Sole is open to the idea of a rescue offer from a suitor of his own choosing to avert an unwelcome LVMH takeover," says one New York investment manager. This investor, who has accumulated Gucci shares, notes that de Sole is "definitely averse" to working for Arnault and is looking for an alternative.

Analyst Dana Eisman Cohen of Donaldson, Lufkin & Jenrette Securities is among those who think LVMH is serious about acquiring Gucci. She notes that two possible snags for LVMH are de Sole and Gucci designer Tom Ford. If either one should oppose LVMH's offer and leave the company, a "critical piece of the value of Gucci would have dissolved," she argues.

For Gucci shareholders, she adds, the situation is a "win-win": Given Gucci's improved business, there's room for the stock to climb higher, based on fundamentals alone, says Cohen. And in a takeover, she adds, LVMH could pay at least 100 a share.

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