Italian fashion house Gucci Group, fighting a hostile bid by LVMH Moet Hennessy Louis Vuitton, agreed Friday to sell a 40% equity stake to French premier retailer Pinault-Printemps-Redoute for $3 billion.
In announcing the deal, Pinault also said an affiliate would buy French drug group Sanofi's beauty and fashion unit for $1 billion and then sell it to Gucci at cost.
The new powerhouse would challenge LVMH, the world's largest maker or luxury goods, by combining Gucci leather goods, scarves, watches, jewelry and perfume with Sanofi's Yves Saint Laurent brand and perfumes from Oscar de la Renta, Van Cleef & Arpels, Roger & Gallet, Krizia and Fendi.
Pinault-Printemps-Redoute would pay $75 each for Gucci's 39 million new shares, diluting LVMH's stake in Gucci to 22% from 34.4%.
The deal wrecked peace talks in Amsterdam between Gucci and LVMH, which ended after just 30 minutes as LVMH accused Gucci of launching an anti-takeover defense in violation of a court ruling.
"LVMH came to this appointment in good faith. We believed we could make a lot of progress, and we were disappointed Gucci clearly did not come in good faith," said James Lieber, special advisor to LVMH Chairman Bernard Arnault.
LVMH plans to drag Gucci back before the Amsterdam judge who originally ordered the two sides to settle their differences amicably, Arnault said.
The Sanofi transaction changed the complexion of Pinault's deal with Gucci from that of a last-minute white-knight rescue to a high-stakes grab for market power, analysts said.
"This is a good deal for strategic business purposes. It's not just a white-knight play," said one analyst, adding that the transaction leaves LVMH "stuck in the mud."
Gucci's revenue topped $1 billion last year, up from about $975 million in 1997, while net income was $195 million, up 11% over 1997, the company said.
Gucci's full financial results are expected Monday, but analysts said they will confirm that Gucci again was among the world's two or three most profitable luxury goods companies.
Teetering on financial ruin just five years ago, Gucci has stormed back in the late 1990s under the guidance of Chairman Domenico De Sole, a Harvard-trained lawyer, and its chief designer, Tom Ford of Texas. Its phenomenal recovery has come on the back of its traditional prestige handbags and footwear.
Gucci could move more aggressively into the high-overhead markets for perfume and cosmetics via Sanofi, while Pinault is also likely to offer Gucci new retail strategies, analysts said.
Gucci shares rose 16%, or $11, to close at $81 on the New York Stock Exchange; LVMH's American depositary receipts closed unchanged at $50.75 on Nasdaq.