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Question 1 - At what price do you anticipate Gucci’s shares to settle on after the announcement on September 10, 2001? Will LVMH have created value from the deal? What is in this deal for PPR?
After the announcement date, the share price must settle in its fair value, $ 88,87. This value is computed through Dividend Discount Model (DDM) assuming the price agreed for the 2004 offer ($ 101.50) and the dividends paid during the period September 2001 to March 2004 ($ 7.50; $ 0.60; $ 0.65; $ 0.70).
LVMH created value in the deal since the stocks of Gucci were sold at a higher price ($ 91.00) than their market value ($ 85.00) and the value purchased by the group ($ 68,63 - $ 76.00). However, according to our estimates, the true value of Gucci Group is around $ 107.34 per share meaning that LVMH suffered an opportunity cost of $ 16.34 per share.
For PPR, the main advantage of the deal is to be able to diversify his position, by entering in the luxury goods market. In addiction to this, the group also wins since the offer price is lower than the intrinsic value of Gucci.
Question 5- How should one interpret LVMH’s contingent tender offer structure in March 1999? What do you suppose motivated that structure?
In March 1999, LVMH made a 100% takeover bid to the Gucci Group. The offer was $ 81 per share for all shares, including the ones recently issued to PPR, or $ 85 per share for all if the newly issued shares to PPR were rescinded. This proposal can be interpreted as a sign of high interest of the acquirer in Gucci. Most likely, LVMH believed the target company was quite undervalued and the synergies between the two companies would be fairly significant. The reason behind the structure of the deal (higher price if PPR’s shares were rescinded) was the dilution suffered by LVMH from the entrance of PPR group in Gucci. If the acquirer could undo the deal, they would not have seen its position diluted in the target company. Hence, it is advantageous for them to
After the announcement date, the share price must settle in its fair value, $ 88,87. This value is computed through Dividend Discount Model (DDM) assuming the price agreed for the 2004 offer ($ 101.50) and the dividends paid during the period September 2001 to March 2004 ($ 7.50; $ 0.60; $ 0.65; $ 0.70).
LVMH created value in the deal since the stocks of Gucci were sold at a higher price ($ 91.00) than their market value ($ 85.00) and the value purchased by the group ($ 68,63 - $ 76.00). However, according to our estimates, the true value of Gucci Group is around $ 107.34 per share meaning that LVMH suffered an opportunity cost of $ 16.34 per share.
For PPR, the main advantage of the deal is to be able to diversify his position, by entering in the luxury goods market. In addiction to this, the group also wins since the offer price is lower than the intrinsic value of Gucci.
Question 5- How should one interpret LVMH’s contingent tender offer structure in March 1999? What do you suppose motivated that structure?
In March 1999, LVMH made a 100% takeover bid to the Gucci Group. The offer was $ 81 per share for all shares, including the ones recently issued to PPR, or $ 85 per share for all if the newly issued shares to PPR were rescinded. This proposal can be interpreted as a sign of high interest of the acquirer in Gucci. Most likely, LVMH believed the target company was quite undervalued and the synergies between the two companies would be fairly significant. The reason behind the structure of the deal (higher price if PPR’s shares were rescinded) was the dilution suffered by LVMH from the entrance of PPR group in Gucci. If the acquirer could undo the deal, they would not have seen its position diluted in the target company. Hence, it is advantageous for them to