Since August, Gucci, Prada, Bulgari, and LVMH Moet Hennessy Louis Vuitton had each been duking it out for a piece of Fendi, the Rome-based house owned and run by five sisters: Carla, Anna, Paola, Franca and Alda. The luxury-goods conglomerates even had competition from an American leveraged-buyout fund, the Texas Pacific Group. For a while it appeared that Gucci had the deal in the bag, so to speak. Late last month Gucci CEO Domenico De Sole bragged that he’d convinced four out of five of the Fendi sisters to sell. But LVMH chairman Bernard Arnault, Europe’s most aggressive takeover artist, was not to be outdone. He cleverly teamed up with his longtime competitor Patrizio Bertelli, husband of Miuccia Prada and CEO of their Milan-based company, Prada. Together, the pair purchased 51 percent of Fendi–valuing the entire company at nearly $1 billion.
It was mostly money that swayed the Fendi sisters. Gucci reportedly offered 25 percent less than Arnault and Bertelli were willing to pay. Of course, some of Fendi’s suitors complained that the team paid too much; one told NEWSWEEK, “They’re throwing money around like drunken sailors.” But Arnault and Bertelli also promised to allow the Fendi family to remain active in the company, in design and managerial posts. That helped cinch the deal. “This was a major stumbling block in the negotiations with Gucci,” says Cedric Magnelia, an equities analyst for Credit Suisse First Boston in London. “From the Gucci perspective, running the company efficiently could have been encumbered by this family management structure.”
In fact, Fendi has long been considered the model for how to run a family fashion house. Founded in 1925 by Adele and Edoardo Fendi, the company quietly built up a reputation for high-quality leather accessories and fine furs. Famed designer Karl Lagerfeld, who reinvigorated Chanel, has designed the Fendi ready-to-wear line since 1965. Nicknamed the Sixth Sister, Lagerfeld was consulted by the Fendis during the negotiations and is expected to stay on as designer. But even with such a master at the helm, Fendi had recently begun to show its age. Out of fashion with the hip set, Fendi was clothing mostly aging bourgeois women.
Fortunately for Fendi, minimalism is officially over. Accessories are back, and more than 40 percent of Fendi’s sales come from handbags, belts and shoes. Over 300,000 Baguette bags have been sold since 1997, helping increase the company’s overall revenues 10 percent over the past two years. “We’re selling them faster than we can get them in,” says Judy Collinson, vice president for women’s wear at Barney’s in New York. “We had a waiting list 40 people long for the $4,000 needlepoint beaded one.” Another American retail executive was so desperate for a Baguette that he traveled to the Fendi showroom in Milan and begged to have a couple to take back in his suitcase. There were none left.
Carla Fendi, the company’s chairman, attributes the success of the Baguette to its individuality (they come in everything from denim to silk). “You can always see one that you don’t have,” says Fendi. “There’s an exclusivity to it, a couture feel.” Still, though the handbag is a raging success, Fendi’s sales last year were only $148 million, with a mere $16.5 million in profit, most of which came from the licensing of watches, eyeglasses, perfume and umbrellas. Gucci’s annual sales are $1.1 billion and Louis Vuitton’s are $1.7 billion.
That’s where Bernard Arnault comes in. Arnault has a knack for turning brands around (witness his success with Celine and Louis Vuitton). The LVMH chairman also wants to expand the global reach of his French luxury-goods company–and he wants to start with Italy. Last spring he lost his long and highly publicized hostile-takeover bid for Gucci. With the Fendi purchase, Arnault not only got his first Italian company. He got revenge.
LVMH and Prada will probably increase their stake in Fendi within the next few months. And Arnault will probably continue his shopping spree. Earlier this month at the Louis Vuitton fashion show in Paris, Arnault told NEWSWEEK, “There are a lot of Italian brands that have a great deal of creativity and room to grow.” And a lot of couturiers who would like to be as rich as the Fendi sisters now are.
