Two days later, on Friday, January 8, after public disclosure of L.V.M.H.’s move had electrified fashion circles, Zaoui rose before a jammed conference room at Gucci’s Grafton Street offices to outline their options. There were, he suggested, two likely scenarios. Either Arnault would launch an immediate tender offer or, far more likely, he would continue buying Gucci shares in “a creeping takeover” designed to give L.V.M.H. effective if not outright control of the company. Either way, in the absence of real takeover defenses, Gucci would almost certainly have to negotiate with Arnault or find a white-knight investor or merger partner to fend him off. “Basically what you’re saying,” observed Robert Singer, Gucci’s chief financial officer, “is ‘You guys are toast.’”
To the surprise of many of those involved, five months later the struggle between Gucci and L.V.M.H., the world’s two pre-eminent luxurygoods makers, wears on. From the January shows in Milan and New York through the March shows in London and Paris and now to the cusp of summer, its myriad twists and turns have kept the runway set rapt; Women’s Wear Daily hasn’t devoted so many column inches to a story since hemlines topped the knee. The blustery, bickering contest is an Ali-Frazier fight for the recherché set: In one corner are the underdogs, De Sole and Ford, lionized as the second coming of Pierre Bergé and Yves Saint Laurent for their role in transforming Gucci from the industry’s jester to its king. Pacing across the ring is the frustrated pre-fight favorite, Arnault, an amateur classical pianist whose tactics owe less to Mozart than to George Patton.
In its broadest context, their fight for control of Gucci is just one more takeover—and at $8.7 billion a small one at that—in a wave of corporate consolidation sweeping the newly united countries of Europe. It is a wave that could well inundate the entire fashion and luxury-goods industry, which is thronged with family-run companies such as Versace, Armani, and Prada, as savvy corporate raiders led by Arnault move inexorably forward, like sharks among cute, chattering dolphins.
Much to Arnault’s dismay, Gucci has turned out to be one tough dolphin. That De Sole and his tightly knit crisis team of lawyers and investment bankers have not only survived but gained the upper hand may, as De Sole candidly acknowledges, prove the old maxim that it’s better to be lucky than good. Behind the scenes, amid the legal and financial arcana where corporate battles like this are fought and won, neither Gucci nor L.V.M.H. has exactly distinguished itself with brilliant stratagems. Arnault charged at Gucci with all the grace of a sumo wrestler, betting that by quickly scooping up massive amounts of stock he would scare away any potential rescuers.
But worse—far worse—Arnault now admits that he never knew of a legal loophole through which De Sole has driven not one but both of the two major transactions that have so far maintained Gucci’s independence. Only after a series of missteps and blunders narrowed his options did De Sole succeed in using this loophole to arrange exactly the kind of white-knight rescue that Arnault had sought to prevent. Now, after a Dutch court on May 27 approved the eleventh-hour defensive alliance that Gucci has forged with 62-year-old François Pinault, one of the wealthiest men in France, Gucci has declared victory. But L.V.M.H. vows to fight on.
How it all happened is a story that has little to do with loafers or leather. It is instead about arrogance and missed opportunities, hubris and crossed signals, and very smart men who made very dumb mistakes. And it begins and ends with the unassuming De Sole, a man whose ready smile and deferential manner suggest those of a diplomat. Underestimated throughout his career, De Sole has undergone a quiet transformation from bewildered, intimidated cadet to assertive field marshal.
When I ask Arnault straight out where his designs on Gucci went astray, he sighs. “I wish I understood it myself,” he says. “I should maybe have tried to analyze De Sole more. Maybe.” He pauses, then looks up. “No?” Arnault’s elegant right-hand man, a towering, ruler-thin attorney named Pierre Godé, has his own take on De Sole. “I think,” he says, “we were a little naïve.”
No one appreciates the irony of his current situation more than De Sole, a native Italian who runs a wildly mongrelized Italian company: Gucci is headquartered in Florence, chartered in the Netherlands, and traded on the New York Stock Exchange; De Sole divides his time among London, Connecticut, and Tuscany; Tom Ford is based in Paris and London and socializes actively in Los Angeles; while nearly one-half of the company’s sales come from Asia. Just seven years ago Gucci was so wrecked that its previous owner, the Bahrain-based investment concern Investcorp, couldn’t give it away. Gucci lost $30 million in 1992 and a year later teetered on the edge of bankruptcy. In 1994, amid rumors that Gucci would be liquidated, Investcorp tried to sell it and promptly struck a deal with, of all people, Bernard Arnault. Set to acquire the company for about $400 million, he backed out at the last minute. In a story that has become lore inside Gucci, the Frenchman told Investcorp officials that the company was worth “nothing.” Five years later Arnault is attempting to buy that “nothing” for $8.7 billion.
By now the story of Gucci’s fall and rise is well known. Founded in 1923, Gucci thrived for decades on the quality of the subtle leather loafers and pocketbooks its Florentine artisans assembled by hand. Then, after the death of family leader Rodolfo Gucci in 1983, the many branches of the family basically went to war against each other, at one point filing 15 separate lawsuits. By 1989, after a series of infamous incidents, including the alleged boardroom beating of one relative with a portable tape recorder, Rodolfo’s son, Maurizio Gucci, emerged as the company’s chief executive and largest family shareholder, having sold a 50 percent stake in the company to Investcorp. Maurizio’s consigliere was De Sole, who after attending Harvard had become a partner in the Washington law firm of Patton, Boggs & Blow, where he handled some of Maurizio’s tax issues. In time Maurizio lured him away to become head of Gucci’s American arm.
At the time, Gucci’s wounds were self-inflicted. Like Perry Ellis and other smart fashion brand names, Gucci badly watered down its image in the 1980s by licensing some 22,000 products, everything from Gucci key chains to Gucci scotch. But Maurizio’s decision to cut back on these agreements was disastrous. Cash flow dried up, and the company went into a tailspin. Watching its $160 million investment disintegrate, Investcorp finally took action in 1993, buying out Maurizio, assuming 100 percent control of the company, and two years later naming De Sole its new C.E.O. (In 1995, Maurizio was murdered on a Milan street; after a trial, his ex-wife and two hit men were convicted. Apparently he had been late with alimony payments.) Unable to sell Gucci, Investcorp assigned De Sole the seemingly impossible task of resurrecting the company. For creative direction De Sole turned to the last designer on his payroll, a talented 32-year-old named Tom Ford.
Born in Texas and raised in Santa Fe, the sturdy, darkly handsome Ford attended New York’s Parsons School of Design and hung around the Warhol fringe before joining Gucci as a junior designer in Milan in 1990. With the company’s survival depending solely upon his eye, Ford’s first collection as lead designer, in October 1994, was an embarrassment. But the January 1995 men’s and March 1995 women’s collections were legendary, “highlighted by patent-leather coats and pants with an almost metallic finish soon seen in knockoffs everywhere,” as this magazine later noted. Ford made his influence felt in every corner of the Gucci empire, originating or approving every design, coming up with ideas for the ad campaigns. No detail was too small. (To this day he insists on reviewing the table settings at company P.R. events.) Suddenly everyone from Madonna to Gwyneth Paltrow was wearing Gucci. There were lines around the block at the stores in New York and Milan. By the fall of 1995, Investcorp was confident enough of the De Sole-Ford team that it sold shares in Gucci to the public, an unimaginable scenario just a year earlier. Worldwide sales soon doubled, then doubled again.
But Gucci’s success on the runway masked its vulnerability to a takeover. It was no accident that when Arnault finally attacked, Gucci found itself ill-prepared. From its inception as a publicly held company in 1995, in fact, it was designed to be taken over. Investcorp, which had badly wanted to cash out its majority ownership position, “actually structured the bylaws to facilitate a 100 percent takeover,” notes Robert Singer, De Sole’s numbers man. “From their point of view, that would have been an excellent exit strategy.” But when Investcorp did sell its last Gucci shares to the public in March 1996, it left De Sole and Ford at the helm of a defenseless ship—which grew only more attractive to pirates as the pair transformed Gucci into the world’s hottest fashion corporation. “We were just sitting here, waiting for someone to take us over,” remembers Ford. “It really bothered me. It was just so frustrating.”
In 1996, De Sole, acutely aware of Gucci’s vulnerability, began something code-named Project Massimo—the Italian word for “maximum”—a catchall tag for examining any and every scheme that might ward off unwanted suitors. Working with Morgan Stanley and a pair of big American law firms, De Sole looked at all manner of defensive stock restructurings, even partial and total mergers with companies such as Ronald Perelman’s Revlon. Eventually, in late 1997, De Sole formally proposed to shareholders that Gucci adopt an American-style poison pill, a device that when triggered floods the stock market with new shares, making any takeover prohibitively expensive. Less than a quarter of Gucci shareholders bothered to vote, however, and the opposition of a large Los Angeles mutualfund company squashed the proposal. “It was incredibly disappointing,” recalls Ford.
In retrospect, the defeat may only have highlighted Gucci’s vulnerability. It was in the months immediately afterward, Gucci executives now believe, that Arnault began secretly buying their stock. (The shares in question were traced to a phantom corporation with L.V.M.H.’s Paris address. “Not terribly subtle,” notes a Gucci attorney.) But when an outside investor did emerge with a 9.5 percent stake in June 1998, its identity stunned De Sole: it was Prada, the incredibly successful, family-controlled Italian fashion house that was barely half Gucci’s size and whose president, Patrizio Bertelli, had little experience in takeover raids. Ford’s first thought was that Prada was some kind of stalking-horse for Arnault. It wasn’t, but that did nothing to lessen the shock of Bertelli’s sudden appearance. De Sole met Bertelli for lunch and listened as he described ways the two could exploit their companies’ “synergies.”
It was a classic chummy European pitch, one that ignored the possible conflict-of-interest allegations that De Sole, now C.E.O. of a publicly traded corporation, might face if he favored Prada in any kind of business deal. “I tried to tell him, ‘We can’t make this pizza together,’” De Sole recalls. “[I said,] ‘Patrizio, this is not my company. I have to talk to my board.’ He thought I was joking.” Thereafter, De Sole turned a cold shoulder to Bertelli, who grew increasingly disgruntled as Gucci stock, buffeted by last year’s Asian financial crisis, sank into the $35-a-share range. De Sole’s nearsighted failure to somehow turn Bertelli into an ally would come back to haunt him. “I wish I had,” De Sole says today. “In life you make a lot of mistakes.”
The Prada situation brought new urgency to De Sole’s Project Massimo schemes. “I was really scared last year, last summer, [thinking,] Oh, God, these guys [at L.V.M.H.] are really coming,” De Sole recalls. “[But] I was really totally stupid about it. I didn’t know anything [about takeovers].” By autumn he and Ford were busy examining a drastic solution to keep Gucci out of hostile hands: buying the company themselves. Morgan Stanley bankers arranged for De Sole to meet with Henry Kravis, still the acknowledged king of leveraged buyouts, and Kravis spent several weeks considering a possible transaction. In the end, however, both Kravis and De Sole realized a buyout made no sense. Given the high profit margins Kravis required to pay off debt in a buyout, there was simply no way for a “financial” buyer such as Kravis to compete with a “strategic” buyer such as L.V.M.H.; he would be easily outbid. “The only thing we would have done,” De Sole says today, “is start a [bidding] process we couldn’t control.”
The business world is full of brash, moneyed outsiders who buy their way into established industries and, by virtue of their outsize personalities or nontraditional actions, stir up strong emotions. Some, such as Mohamed Al Fayed and the late Robert Maxwell, spend the rest of their lives trying to buy acceptance; others, such as Richard Branson and Ted Turner, begin as buccaneering outsiders but are ultimately embraced for their brilliance. Despite a series of bitter battles in which he has tilted against the French establishment, Bernard Arnault is well on his way to a senior position in the latter camp.
Arnault’s story has been told almost as often as Gucci’s. Raised in the provinces, the son of a wealthy construction magnate, he was a 35-year-old novice real-estate developer in 1984 when he used his first wife’s connections to buy a stake in a bankrupt French textiles company called Boussac, which counted among its assets the Christian Dior fashion house. The French government sold him the rest of Boussac after he promised to safeguard the company’s payroll, only to watch him lay off 8,000 people in the next five years, for which he was criticized by the French press; the government ultimately forced him to repay $60 million of its investment in the company.
But the events that defined Arnault’s career began in 1988, when he launched his two-year struggle for control of L.V.M.H., maker of Louis Vuitton luggage and Moët champagnes, which like Gucci had fallen prey to warfare among its controlling families. First working with, then turning against, L.V.M.H.’s patriarch, a French business legend named Henri Racamier, Arnault triumphed only after a high-profile fight in which he leveled against Racamier charges, all unproven, of embezzlement, Nazi collaboration, and ties to the extreme right-wing politician Jean-Marie Le Pen. The spectacle so mesmerized the French public that at one point President François Mitterrand discussed its implications in a televised address.
