Pinault-Printemps to Buy Control of Gucci

PARIS —  French retailer Pinault-Printemps-Redoute agreed Monday to pay LVMH $806 million for control of Gucci Group, ending a 2 1/2-year battle for the company known for its figure-hugging clothes and leather handbags designed by Tom Ford.

Pinault-Printemps will buy some of LVMH’s stake, boosting its holding in the third-biggest fashion company to 53%. It agreed to offer $101.50 a share for the rest of Gucci, which sells handbags for more than $4,000, in March 2004.

The fight between Pinault-Printemps founder Francois Pinault and LVMH Moet Hennessy Louis Vuitton Chairman Bernard Arnault began in a year when a booming economy help drive an 83% jump in Gucci sales. Now LVMH and Gucci say demand for luxury goods is weakening as global economic growth slows.

“Both Gucci and LVMH will be able to focus on running their businesses again,” said Scilla Huang Sun, who manages a $63-million luxury goods fund at Clariden Bank. “It’s excellent news that they’ve finally reached a solution.”

Neither Gucci Chairman Domenico De Sole nor Ford will receive extra incentives to remain with the company.

“There is no special deal,” De Sole said on a conference call. “PPR has been an excellent partner in building the multi-brand strategy. We look forward to staying with the company.”

In June, Gucci cut its earnings and sales forecasts, citing slowing U.S. demand and the cost of revamping Yves Saint Laurent.

LVMH plans to sell its remaining shares in Gucci, about 12 million, to a financial institution by year-end. It will receive a total of 2.1 billion euros in cash for its stake and book a profit of 760 million euros on the investment.

Gucci shareholders other than Pinault-Printemps will be paid a special $7 dividend.

“LVMH gets out of a situation in which it was stuck,” said Gian-Luca Manca, an analyst at HSBC with “buy” ratings on Gucci and LVMH. “It’s the best solution they could have found.”

Pinault-Printemps will sell 700 million euros in new shares and 700 million euros of convertible bonds to pay for the purchase. The transactions won’t affect earnings this year and will add to earnings next year, it said.

Artemis, the Pinault family holding company, will subscribe to both the share sale and the bond issue to keep its stake in PPR at about 45%, said Pinault-Printemps Chief Executive Serge Weinberg.

The French retailer, which runs department stores and controls Rexel, a building materials supplier, will name five of Gucci’s 10 board members. The chairman of Amsterdam-based Gucci will be appointed by the independent directors.