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The Dutch Supreme Court today announced its decision in favour of LVMH in the Gucci matter. Following the advice of the Advocate General, the Supreme Court has annulled the May 27, 1999 judgement of the Enterprise Chamber of the Amsterdam Court of Appeals, which had validated the agreement entered into between Gucci and PPR on March 19, 1999.This agreement enabled PPR to acquire 42% of the share capital of Gucci, without either launching a full bid for the company or the management of Gucci insisting that PPR do so. Contrary to assertions by PPR and Gucci, this agreement was never submitted for shareholder approval.Dutch legal experts consulted by LVMH consider that as a result of the Supreme Court's decision, the legal actions in progress should result in the cancellation of the PPR transaction.A spokesman for LVMH said: "We are pleased with this decision. We will immediately refile our case before the Enterprise Chamber to obtain: (i) a full investigation of Gucci's mismanagement between January and March 1999, (ii) cancellation of Gucci's capital increase to PPR, and (iii) all other appropriate measures to remedy the harm caused by the improper conduct of Gucci's management. We are confident that this new procedure before the Enterprise Chamber will re establish fairness among Gucci's shareholders."Cancellation of the transaction by which PPR took control of Gucci would take place during 2001. In such event, LVMH will propose a solution in the interest of all Gucci shareholders that would enable Gucci to continue to execute its strategy, while remaining entirely independent.Notes to EditorsUpdate September 27, 2000GUCCI LVMH Background MemorandumI. LVMH's investment in GucciDuring the course of January 1999, LVMH increased its interest in Gucci to approximately 34% of Gucci's share capital.LVMH directly informed Gucci of each step of this increase and made public announcements in accordance with all legal requirements. At the same time, and continuing into February 1999, LVMH and Gucci had meetings and exchanged correspondence regarding LVMH's shareholding in Gucci. LVMH promptly assured Gucci that it would not interfere with the independence of Gucci's management and that any commercial proposals between the two companies would be handled on a management to management basis. LVMH also undertook that it would not to seek a majority on Gucci's Supervisory Board. On February 10, in accordance with Gucci's articles of association, LVMH proposed the nomination of a single independent individual for election to Gucci's Supervisory Board. LVMH and Gucci also exchanged a draft term sheet and correspondence concerning a standstill and independence agreement.II. Gucci's defensive ESOPNot satisfied with the progress of these negotiations, on February 17, 1999, Gucci announced publicly that it had issued 20,154,985 shares to a newly created Dutch foundation (the "Foundation") in the context of a purported employee stock option plan (the "ESOP"). Gucci loaned the Foundation the funds to purchase these shares.On February 25, LVMH filed a lawsuit with the Enterprise Chamber of the Amsterdam Court of Appeals challenging the legality of Gucci's ESOP. Among other things, LVMH's petition argued that Gucci had diluted the voting rights of existing shareholders without any economic benefit to Gucci, since the Foundation had not paid for its shares. LVMH further argued that because Gucci employees never stood to benefit from the plan, its real intent was to illegally create voting rights controlled by Gucci management that would neutralize the voting rights of the shares LVMH had purchased.On March 3, the Enterprise Chamber, in its provisional ruling, stated that it had serious doubts about the legality of the ESOP and ordered that the voting rights of the Foundation be frozen. The Enterprise Chamber took the matter under consideration and scheduled a hearing for April 22. The Enterprise Chamber urged that LVMH and Gucci negotiate to reach a mutually satisfactory agreement before that date. In order to balance the situation during this period, the Enterprise Chamber also froze the voting rights of LVMH.Immediately after the Enterprise Chamber's March 3 ruling, LVMH withdrew the nomination to Gucci's Supervisory Board and wrote to Gucci urging that they restart negotiations regarding a standstill and independence agreement.On March 9, Gucci forwarded to LVMH a revised term sheet for a standstill and independence agreement, and LVMH responded by confirming in writing its agreement to the following fundamental principles: (1) an LVMH standstill, (2) an LVMH undertaking not to take control of Gucci's Supervisory Board, (3) the adoption of appropriate procedures to manage any conflicts of interest on the Board, (4) an LVMH undertaking not to interfere with Gucci's management and (5) arm's length dealing between the two companies. LVMH and Gucci scheduled a meeting in Amsterdam for March 19 in order to negotiate the details of this agreement.III. The PPR transactionJust hours before that meeting on March 19, however, Gucci announced that it had entered into a Strategic Investment Agreement with Pinault Printemps Redoute Group ("PPR"), under which Gucci issued 39 million new shares to PPR in exchange for approximately $3 billion. Together with shares purchased by PPR on the open market, this new issuance gave PPR approximately 44% of Gucci's share capital (excluding the ESOP shares). This share capital increase had the effect of reducing LVMH's stake to approximately 21% (excluding the ESOP shares). The Strategic Investment Agreement also granted PPR an option to purchase up to an additional 10% of Gucci's shares in certain circumstances. Finally, the agreement gave PPR the right to nominate 4 out of 9 members of Gucci's Supervisory Board and gave PPR control over Gucci's strategy, acquisitions and financing policies through PPR's right to nominate 3 out of 5 members of the newly created Strategic and Financial Committee of Gucci's Supervisory Board. PPR undertook not to increase its shareholding in Gucci beyond 44% until March 2004. Thereafter, PPR would be free to acquire additional shares in Gucci and go past 50% without making a full bid for all Gucci shares. LVMH had previously considered and rejected the opportunity to acquire Sanofi Beaute for lack of business interest and as too expensive.LVMH responded to the PPR transaction by announcing that it intended to make a tender offer for 100% of Gucci's shares, subject to certain conditions (including cancellation of the PPR transaction and the ESOP). LVMH also brought a supplemental petition in its lawsuit before the Enterprise Chamber challenging the legality of the PPR transaction.After a hearing on March 22, 1999, the Enterprise Chamber issued a preliminary ruling finding that Gucci had failed to act in good faith, in part because it had conducted its negotiations with PPR at the time when it should have been negotiating with LVMH in accordance with the Enterprise Chamber's own March 3 ruling. The Enterprise Chamber reinstated LVMH's voting rights and ordered Gucci's Supervisory Board (without any PPR representatives) to negotiate LVMH's proposed tender offer. Finally, it suspended the PPR Strategic Investment Agreement to the extent necessary to allow a tender offer to take place.LVMH and Gucci negotiated the terms of LVMH's tender offer in a series of meetings and presentations in late March and early April, in which LVMH sought Gucci's cooperation in making a third party bid possible, despite the significant shareholding of PPR. On April 8, however, Gucci's Supervisory Board rejected all of LVMH's proposals, and it became apparent that LVMH would not be able to acquire a majority of Gucci's shares in a tender offer given PPR's significant shareholding.LVMH, Gucci and PPR returned to the Enterprise Chamber for a hearing on April 22. At that hearing, the Enterprise Chamber took the matter under consideration and ordered that Gucci not spend any of the $3 billion it had received from PPR until there was a final decision.?Dutrow is coming home to familiar turf Trainer leaving Aqueduct
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