Gucci Antes Up for Yves Saint Laurent

Continuing the trend of consolidation in the luxury goods industry, Gucci (GUC) announced Monday its proposed acquisition of Sanofi Beaute, which owns the Yves Saint Laurent fashion house and other famous brands.

Gucci shares were up 2 1/4, or 3%, to 80 15/16 at midafternoon. (Gucci closed up 2 11/16 to 81 3/8.)

Gucci will pay about 4.44 billion French francs, or $704.5 million, to Artemis, the holding company of French businessman Francois Pinault, for Sanofi's equity. Also, Gucci will assume about 1.7 billion francs of Sanofi's debt, putting the total cost of the transaction at almost $1 billion. The deal is expected to close in mid-December.

Sanofi Beaute owns the Yves Saint Laurent fashion business and the Yves Saint Laurent perfumes and cosmetic business, as well as the Roger & Galle brand and the perfume licenses for Van Cleef & Arpels, Oscar de la Renta, Fendi and Krizia.

Pinault-Printemps-Redout, which is controlled by Artemis, bought a 42% stake of Gucci in the spring for $2.9 billion, "with the intention of growing Gucci into the dominant multibranded luxury goods house," said analyst Janet Kloppenburg of Robertson Stephens. She rates Gucci a buy and her firm hasn't done underwriting for the company. PPR's move effectively saved Gucci from a hostile takeover by its larger rival LVMH Moet Hennessy Louis Vuitton (LVMHY). PPR also bought Sanofi in March for 6 billion francs, for the purpose of selling it to Gucci.

The sale took longer than expected, primarily because Yves Saint Laurent co-founder and chief executive Pierre Berge resisted working under Gucci's management, Kloppenburg noted. Gucci's management team, led by Domenico De Sole, president and chief executive, and Tom Ford, creative director, will take the reins of the Yves Saint Laurent couture and Rive Gauche businesses. Today's deal doesn't include the haute couture business, which is the smallest part of the Yves Saint Laurent operation and which Berge will continue to run.

Yves Saint Laurent could use the infusion of new blood. "This is a brand that's not been growing as rapidly as it should," commented Kloppenburg. "This is a great opportunity for Gucci management to rejuvenate it."

Gucci management announced its intention to "apply rigorous control to design, production and distribution in order to develop the Yves Saint Laurent brand to its full potential and achieve high levels of revenue growth and profitability." Excluding the amortization of intangibles and goodwill, Gucci expects the purchase to dilute net income in 2000 and 2001 by less than 5% and to be accretive thereafter. Including the effects of trademark and goodwill amortization, the acquisition is expected to be dilutive by less than 10% in the first two years, to have a "negligible" effect on net income in 2002 and to be accretive beginning in 2003.

Gucci is playing catch-up with LVMH, which is on a buying spree, snapping up watch makers Ebel and Chaumet and teaming up with Prada to buy 51% of Fendi. Gucci's own attempt to buy the Roman fashion house failed when LVMH and Prada offered more money.

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