GUCCI SHAREHOLDERS VENT
Byline: Samantha Conti / Miles Socha
AMSTERDAM — Never mind Gucci Group’s warnings of lower 2001 profits and widening losses at Yves Saint Laurent.
Shareholders at the company’s annual meeting here Wednesday preferred to air old grievances, complaining about stock options granted to Gucci’s senior management and taking the group to task for not spending its $3 billion cash pile fast enough.
And, of course, rival LVMH Moet Hennessy Louis Vuitton, Gucci’s most outspoken shareholder with a 20.6 percent stake, resurrected its familiar arguments: let Pinault-Printemps-Redoute, which owns 42 percent of Gucci, make a full bid for the company or cancel its alliance with PPR.
In a meeting marked by terse exchanges and temper flare-ups, minority shareholder groups pummeled Gucci with criticism of its spending strategies and compensation practices.
“What do you intend to do with the $3 billion, and why have you only made small acquisitions so far?” asked Carolien van der Giessen, a lawyer with the Dutch shareholder group VEB.
Gucci Group chief executive Domenico De Sole answered her first question with another one: “Do you want me to spend money just because I have it? We will take all of the time necessary to make the right acquisitions — those that will create value for shareholders and for the company.”
Not satisfied with that answer, a representative of French shareholders piped in with questions of her own such as, why are half of Gucci’s assets in cash, and how much is it costing Gucci to have the cash sitting in a bank?
De Sole defended Gucci’s plans to use the cash to build a multi-brand group “because there’s a limit to how much one luxury brand can grow. Gucci is a $2.5 billion company, so we have no choice.”
But De Sole acknowledged at the meeting that the main reasons behind Tuesday’s profit warning, delivered in the context of first-quarter earnings, werea drop in U.S. interest rates and unexpected restructuring costs at YSL. As reported, Gucci lowered its forecast for fully diluted net income per share to $3 from $3.40. The company said 30 cents of the reduction would come from lower interest rates on Gucci’s cash reserves, while 10 cents would derive from the YSL costs.
Stock options granted to De Sole and Gucci Group creative director Tom Ford, a focal point last fall in the ongoing LVMH-Gucci war, were a bitter point of contention at Wednesday’s meeting, held in the gilded ballroom of the Amstel Hotel. Shareholders, who a year ago approved a package of stock options totaling 6 million shares for top Gucci management, accused the company repeatedly of not disclosing essential information about the options.
Indeed, 5 million of the options went to De Sole and Ford while the rest went to other members of top management. As reported, however, Dutch law does not require Gucci to disclose all the specifics of its stock option plan. James Lieber, LVMH’s representative at the meeting, also criticized Gucci for not revealing that it has doled out what are known as “in-the-money” options — to the tune of $31 million in the case of Ford and De Sole.
In one of the meeting’s chillier exchanges, Gucci lawyer Allan Tuttle explained the rationale behind the in-the-money options: essentially negotiations to renew employment contracts were initiated at a time when the stock was at a certain price and the decision was made not to “penalize the grantee” with a higher strike price when negotiations were finalized.
Lieber asked Tuttle to confirm that Gucci last year asked shareholders to approve in-the-money options, despite the company’s stated policy in its 1999 annual report that stock options are granted at strike prices equal to or greater than the market price at the time of the grant.
Tuttle retorted: “I told you what happened. I told you what we did.”
Lieber added: “Which was inconsistent with your stated policy. Thank you.”
Despite the acrimony over the last year’s pack of options, shareholders were asked Wednesday to approve the issue of an additional 1.5 million options for future managers and directors. The motion passed, although LVMH and other minority shareholders abstained or voted against it.
Two years ago, in a bid to fend off hostile advances from LVMH, Gucci gave PPR a 40 percent stake in the group via a new share issue, and received a cash injection of $3 billion that was earmarked for acquisitions.
Lieber reiterated LVMH’s familiar remedies: “The first solution is that PPR launch a full bid for Gucci, at a fair price. In our view, this would remedy the principal errors of the March 1999 PPR transaction. The second solution is that the Dutch courts cancel the PPR transaction. We can see from Gucci’s accounts that this presents no problem for the company, as it currently has more than $3 billion in cash on hand that can be returned to PPR. This is LVMH’s position. It is not complicated and it is not, in our view, unreasonable.”
Van der Giessen of VEB said her biggest fear was what will happen in 2004 when PPR’s standstill agreement comes to an end. “We are afraid that PPR will increase its stake in Gucci without making a public offer with a premium for shareholders. We are afraid that minority shareholders will not benefit from the expanding power of PPR.”
Adrian D.P. Bellamy, chairman of Gucci’s supervisory board, said, “I believe that the performance of Gucci shows that our strategic alliance with PPR has been extremely good for the company. We stand by our record.”
Meanwhile, Gucci has decided to relaunch a more comprehensive marketing-driven Web site at Gucci.com on Aug. 1, the fashion house disclosed Wednesday.
“Almost the entire line would be marketed at the new site — between 10 and 30 items in all categories, from ready-to-wear to gifts,” said Kevin Farnham, chief executive officer of Method, a multimedia design and marketing firm with offices in New York and San Francisco. Version two of Gucci.com, Farnham added, will also feature “an enhanced Gucci culture area, spelling out the company’s history and highlighting key items and trends through the years.
Method was recruited by Gucci just this month, Farnham said. And Gucci has hired Leanne Fremar as its eCreative director to lead the effort in-house.