In the bare knuckles takeover battle between luxury goods companies Gucci Group NV and LVMH Moet Hennessy Louis Vuitton, some of Gucci's biggest institutional holders are beginning to make their presence felt.
All want to get the highest offer possible, and several believe the price LVMH has offered for Gucci -- $85 a share -- is too low. Alternatively, LVMH proposes to acquire all Gucci shares for $91 per share, provided sale of a 40% stake in Gucci to Pinault-Printemps-Redoute SA be rescinded. Both proposals were rejected by Gucci.
An Amsterdam court is expected to review the entire situation April 22. Gucci is incorporated in The Netherlands.
Hugh Morrison, a spokesman for LVMH, said, "There is no precedent for a hostile tender offer succeeding when someone else owns more than 40% of the company." He was referring to the PPR stake, which LVMH hopes will be rescinded.
LVMH fired another salvo last Thursday with a letter to all Gucci shareholders explaining why it thinks Gucci has treated it unfairly and is not acting in the best interests of all its shareholders.
With the PPR transaction still in place, the letter suggested that if LVMH can get a majority of Gucci's independent shareholders to support its bid, Gucci should then act to ensure the success of the offer, despite the PPR block.
But money managers interviewed by Pensions & Investments don't think the bid is high enough.
Among money managers, Bahamas-based Templeton Funds, which owns a 6% stake in Gucci, "just wants the best price for its shares," said a spokeswoman for Mark Holowesko, president of Templeton Global Advisors Ltd., the investment manager for Templeton Funds. It thinks the $85 a share bid is too low.
However, Templeton also said in a statement that "Gucci management has effectively created value for Gucci shareholders through its management of the business."
Even the $91-a-share offer is "too low," said Giles Michel, an analyst with the New Jersey Division of Investment, Trenton. He thinks Gucci is worth about $100 a share.
The division owns about 1.4 million shares, making it one of Gucci's biggest U.S. stockholders.
Mr. Michel is very impressed with Domenico De Sole, Gucci's chief executive, and top designer Tom Ford, who, he said, "have turned the company around in five years."
Messrs. De Sole and Ford have indicated they will leave the company if LVMH acquires it.
At Harris Associates LP, Chicago, "our sole interest is getting the highest price attainable," said portfolio manager Bill Nygren. Harris owns more than 1 million shares of Gucci stock.
(On Jan. 19, LVMH purchased 3.85 million shares of Gucci stock from Harris Associates, after purchasing Prada's 9% stake in Gucci on Jan. 12. LVMH paid $694.4 million for the two stakes, according to a report from Institutional Shareholder Services, Bethesda, Md.)
"The likelihood is there will be competing bids and management will recommend one," Mr. Nygren added.
"Management will recommend the bid that's in the best interest of shareholders and that would be the one with the highest price."
While he "likes the people at Gucci" now, "we have to get the most value for our shares," said Mr. Nygren.
He liked Gucci's tactic of selling a stake to PPR because, he said, "it took that sale to get LVMH to make an offer for all the shares."
Pam Woo, an analyst with Evergreen Asset Management, Purchase, N.Y., which owns more than 325,000 shares of Gucci stock, said she favors Gucci's current management, led by Messrs. De Sole and Ford, because "they have really turned the company around."
She said she wishes PPR, headed by Francois Pinault, "would step up" and make a bid for the entire company.
"From my perspective, the way LVMH went about it was not very professional," she added. "What they should have done (initially) is make an offer for 100% of the company.
"For them to go to some shareholders to buy their stakes is unjust to the rest of the shareholders," she said. "I don't like the tactics Mr. Arnault (Bernard Arnault, chief executive of LVMH) is using."
In an interview, Alan Tuttle, Gucci's general counsel, said, "We've talked to institutional shareholders and they've been supportive of what we've been doing.
"The whole thing comes down to price," he added. "If LVMH makes a low offer there is no reason for PPR to make a counteroffer. If LVMH made a serious (higher) offer, PPR could tender its shares or make a better offer."
Julie Welch, a global analyst with ISS, thinks shareholders should have the right to vote on any offer. "If shareholders think Mr. De Sole and Mr. Ford are so important to the company, they can reject the offer" from LVMH.
ISS also believes shareholders should have had a vote on the sale of the 40% stake to PPR.
"Management is not acting as if the shareholders own the company," she said.
Adam, a French shareholder rights association, also criticized Gucci for selling the stake to PPR.
Colette Neuville, head of Adam, said that under European rules, shareholders should have been consulted before Gucci issued such a large number of shares to PPR.
Last week Adam said it intends to sue Gucci over the sale of shares to PPR. It said it is acting on behalf of an unnamed individual shareholder who owns 400 Gucci shares.
"Gucci has time and time again gone against the interests of its shareholders and not allowed its shareholders to have a say. With the amount of foreigners who own the stock, that is not acceptable," said Ms. Welch.