Arnault shows iron fist in velvet glove as Gucci gives him the slip

In the same paradoxical way that some drinks manufacturers are among the most unsociable people on earth, and there’s no place like a woolly liberal newspaper for back-stabbing and prejudice, luxury goods manufacturers have a habit of behaving in some pretty unsophisticated ways.

One might imagine that the likes of Gucci and LVMH are commanded by lean Italian and French aesthetes, who run their businesses from the terraces of well-appointed Mediterranean palaces. Perhaps they do, but they are as willing to adopt the management techniques of barrow boys and street pugilists as the rest of us when it comes to doing business with each other.

At the start of this week, the French LVMH was in a Dutch court trying to persuade the authorities to suspend the Italian Gucci’s supervisory board, which is chaired by Body Shop’s American joint venture partner, Adrian Bellamy. LVMH says this supervisory board has dragged its feet over responding to LVMH’s $5bn (3.03bn) takeover bid of last Friday and, worse, has acted against the interests of shareholders as a whole and, presumably, LVMH in particular, which sits on a 34.4 per cent stake.

Gucci appears to be anxious to avoid LVMH’s clutches, having organised an elaborate poison-pill alliance with the French retail monolith, Pinault-Printemps-Redoute, worth some $2.9bn (1.76bn). The deal involves the issue of 40 per cent of Gucci’s shares, at a $10 discount to the price offered by LVMH, to Pinault-Printemps and control of a financial and strategic committee – as well as a new staff share-option plan – moving to French magnate Francois Pinault.

This has all the makings of a very expensive handbag fight between a couple of France’s wealthiest luxury industrialists, Pinault and Bernard Arnault, the troublesome chairman of LVMH. Pinault and Arnault could have been a French music-hall act in a previous life, but they are not playing for laughs in this one. When it comes to French industrial egos, this is a clash of the Titans.

What puzzles me is why Arnault should have turned so belligerent. I confess that I’m not familiar with Franco-Italian cross-border takeover rules, though I imagine there must be something in European Commission competition legislation that holds companies to their publicly declared positions with regard to takeover bids, just as our own Takeover Panel does domestically in the UK.

I say this because shortly after Arnault started building his stake in Gucci in February, he described his intentions towards Gucci to The Sunday Times as follows: “We have said since the beginning that we are not contemplating a bid. They have nothing to fear.”

Well, as Arnault might shrug, that was then and this is now. It could be argued that Arnault has had his hand forced by Gucci’s defensive manoeuvres with Pinault-Printemps. There is only so much that Arnault, as a principal shareholder, can be expected to tolerate before turning hostile.

What has doubtless exacerbated Arnault’s anger at being constantly jilted by Gucci is the contrasting cosiness of the relationship between the Italians and Pinault. Not only do the share issues for the Pinault-Printemps stake and the employee share-option scheme see LVMH’s stake diluted to 20 per cent, but Arnault is further infuriated by Pinault’s recent purchase of Sanofi Beauté for a little over $1bn (610m), with the intention of selling it on to Gucci. Arnault claims the price paid is excessive.

So, as a shareholder of considerable power and influence, it is understandable that Arnault should be so irate. But we have been here before, and it’s worth asking what exactly it is that drives Arnault under these circumstances.

He is nothing if not tenacious. Most famously, last year, he was the thorn in the flesh of Diageo, the merged conglomeration of Grand Metropolitan and Guinness.

Arnault’s plans for the merged businesses were somewhat different from those of the other principals and, unsurprisingly, involved rather greater involvement for LVMH. His vision was for Grand Met and Guinness to merge their Johnnie Walker, Smirnoff and Gordon’s Gin brands with Moet Hennessy’s cognac and champagne interests in a LVMH joint venture, while spinning off Guinness and the various food interests, such as Burger King and Häagen-Dazs.

Again, Arnault’s tenacity served LVMH well. Not only did he secure a 250m payment for his troubles, but the 11 per cent stake in Diageo that LVMH found itself sitting on has provided a handy nest-egg for Arnault’s subsequent shopping spree.

But note that Arnault’s original intentions for Diageo was to strike a joint venture deal with LVMH. That would doubtless have earned LVMH a position in the international spirits distribution business which in the long term would have been worth considerably more than the investment turn it was eventually left with.

LVMH’s intentions for Gucci were similarly based on joint venture when they first started talking. Arnault’s instincts are clearly and consistently directed towards developing LVMH’s business interests through joint ventures. The trouble is these good intentions, at least in the cases of Gucci and Diageo, deteriorate into aggression as Arnault pursues his cause.

It may be that Arnault needs a charm school. It may be that he could just do with being less belligerent. But I have a feeling he is better suited to, and could save time by, being a takeover hawk rather than a joint-venture dove.

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