CASE SETTING: $250 million to $499 million in revenues; luxury goods; Netherlands, France At three o'clock in the morning of September 10, 2001, Thierry Hautillac, a risk arbitrageur, learns of the final agreement between Pinault-Printemps-Redoute SA (PPR) and LVMH Moet Hennessy Louis Vuitton SA (LVMH). After a contest for control of Gucci lasting more than two years, PPR has emerged as the winner. PPR and LVMH have agreed that PPR will buy about half of LVMH's Gucci stock for $94 a share, Gucci will pay an extraordinary dividend of $7 a share, and PPR will give a two-and-a-half-year put option with a strike price of $101.50 to Gucci's public shareholders. In this case, the primary task for the student is to recommend a course of action for Hautillac: should he sell his 2% holding of Gucci shares when the market opens, continue to hold his shares, or buy more shares? The student must estimate the risky arbitrage returns from each of these choices. As a basis for this decision, the student must value the terms of payment and consider what the Gucci stock price will do when the market opens. The student must determine Gucci's intrinsic value by using a DCF model as well as information on peer firms and transactions. The student must also consider potential synergies between Gucci and PPR and between Gucci and LVMH. Finally, the student must assess the likelihood of a higher bid by analyzing price changes at earlier events in the contest.
Hodrick, Laurie Simon, Sean Carr, and Robert Brunner. The War of the Handbags: The Takeover Battle for Gucci Group N.V., Case No. UVA-F-1473. Charlottsville, Va.: Darden, 2005.
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