“These are my relatives; I call them the ‘Pizza brothers,’” he said, painting his cousins as inept provincials. “Gucci is like a Ferrari that we are driving like a Cinquecento,” he continued, dropping in his favorite metaphor with a flourish of a hand.
“Gucci is underexploited and mismanaged. With the right partners, we can bring it back to what it used to be. Once it was a privilege to own a Gucci bag, and it can be again. We need one vision, one direction, and”—he paused for effect—“the money will flow as you have never seen it.”
Maurizio had enchanted the group of investment bankers, even though common sense might have suggested they put their money elsewhere. He had also snared them with the potential of the Gucci brand.
“It was crazy! Really dicey stuff,” recalled Swanson. “There were no consolidated financial statements—at least not at the level we were used to—no definitive central management team, no guarantees. But when he started to spin his story of his vision for Gucci, he charmed other people with his dreams.”
Maurizio’s evident passion for the Gucci name and sense of urgency about bringing it back captivated and inspired Dimitruk as well. Although Dimitruk and Maurizio came from entirely different backgrounds, they were about the same age, had the same driving ambition. Their relationship would prove key over the coming months.
“There was an incredible chemistry with Maurizio,” recalled Dimitruk. “He portrayed himself as the shepherd of the brand, which he had a very, very strong conviction about restoring. He was also ready to say, ‘I don’t know it all.’”
After Maurizio left, Dimitruk picked up the phone and called Kirdar, who was spending his holidays at his favorite retreat in the South of France.
“Nemir, this is Paul. I have just met with Maurizio Gucci; do you know the brand Gucci?”
There was silence on the other end of the phone.
Kirdar was smiling. He said, “I am looking at my feet. I think I am wearing Gucci loafers.” Gucci’s black crocodile loafers with a gold horse bit had always been—and still are—an integral part of Kirdar’s wardrobe.
Kirdar immediately gave Dimitruk the green light to pursue an agreement with Maurizio. He knew Gucci could be Investcorp’s entry ticket into Europe’s closed, chummy business community.
“We had to prove ourselves on both sides of the Atlantic,” said Kirdar years later, “we needed to build our pedigree in Europe.”
“It was much harder to do deals in Europe than in the United States,” recalled Investcorp CFO Elias Hallak, saying the business environment at the time was small and clubby. “It was strategically important for us to do a big deal in Europe.” An investment in Gucci would have made people sit up and take notice on both sides of the Atlantic.
The next step was to introduce Maurizio to Nemir Kirdar, who would make the final decision before they could go forward. Kirdar liked to initiate his business relationships with a fine meal—either in one of Investcorp’s own comfortable dining rooms or at a gourmet restaurant. He preferred to size up new associates in a relaxed social setting rather than a stiff business meeting. Kirdar invited Maurizio to Harry’s Bar—a refined private club known for its gourmet Italian cuisine and fine service.
Surrounded by the understated luxury of Harry’s Bar’s dining room—hardwood floors, round tables, comfortable chintz-covered chairs, and soft lighting—the two men studied each other. Kirdar and Maurizio liked each other instantly. Kirdar found a well-intentioned, inspired young man of thirty-nine intent on his dream to relaunch his family company. Maurizio found a gracious, reassuring man of fifty willing to take a risk on his plan.
“It was a total honeymoon,” recalled Morante. “They were completely in love with each other.”
Kirdar made the Gucci case a top priority project for Investcorp, assigning Dimitruk and Swanson full-time to help Maurizio. They code-named the Gucci project—which had to be kept top secret—“Saddle,” and got to work reviewing the company accounts.
Dimitruk and Swanson worked out a succinct agreement with Maurizio that set out principles and key points of their collaboration: relaunch the brand, install professional management, and establish a unified shareholder base for the company—which meant in business jargon to buy out the other family members. Ultimately, they agreed, Gucci would seek a stock market listing once the relaunch was complete. Those few pages, dubbed the “Saddle Agreement,” formed the basis of what would become a remarkable business relationship.
“We shared Maurizio’s conviction about the value of the name. That it was special and deserved to be restored,” Dimitruk recalled. “I had Nemir’s complete support.” Investcorp committed itself to buy up 50 percent of Gucci from Maurizio’s relatives.
“There was only one path—buying out the cousins,” said Paul Dimitruk. “Maurizio never saw a moment’s hesitation or fear from us. We were just going to persist. We communicated all the time.”
Maurizio was elated. He sensed he was finding his way out of the “Pizza brothers” quagmire. From Maurizio’s headquarters in exile at the Splendide, in a suite overlooking Lake Lugano, Maurizio and Morante plotted the best way to approach Maurizio’s relatives. Morgan Stanley would front the acquisition. Investcorp wanted to remain anonymous until it was clear it could acquire the entire 50 percent.
Maurizio said that Paolo, whom he viewed as unscrupulous, shrewd, and self-interested, should be approached first. Paolo was the key to the puzzle because, although he had only 3.3 percent, he was the least loyal to the family. Paolo knew that even his small handful of shares would break the 50 percent deadlock between Maurizio and the others. He was well aware his sellout would wound his brothers and his father—a sweet revenge for their refusal to grant him importance within the company. Paolo was also poised to launch his business in the United States under the PG label, and needed the money. He didn’t want to know if Maurizio was behind the transaction—or he didn’t care. Morante arranged a meeting with one of Paolo’s lawyers, Carlo Sganzini, at an office in Lugano, across the lake from the Splendide. Maurizio claimed he watched them through binoculars from his hotel window. “I never believed him, but it was all part of the folklore,” Morante said.
At one point, the negotiations with Paolo hit a snag over a clause the lawyers had inserted to make sure Paolo couldn’t compete with the Gucci business. “There was a big desire to close the book on the Paolo problems,” Morante recalled. “Our demands touched Paolo’s most sensitive nerve.”
Furious at the effort to limit his freedom to use his own name, Paolo grabbed the contract, threw it up in the air, and stalked out as the pages floated down around Morgan Stanley’s bankers and lawyers. Morante reported back to Maurizio, who was happily expecting the deal to be closed.
When Morante said that a problem had come up, he watched as Maurizio’s friendly enthusiasm transformed into violent fury; his mouth set into a thin line and the cheerful blue eyes turned to ice. “Tell that Paul Dimitruk if he doesn’t do this deal I am going to sue him for the rest of his life,” Maurizio seethed as Morante stepped back in surprise.
“He had every right to be upset by the failure of the deal, but he had no right to say what he did. He became nasty,” Morante said later. “I realized I had seen the other side of him—he had the litigious genes in his body too.”
Morante patched up the problem with Paolo and cleared the first hurdle for the Gucci bid in October 1987, when Morgan Stanley bought out Paolo for $40 million. Paolo’s lawyer also received a $55,000 watch from Bregeut, the luxury watchmaker Investcorp had bought earlier that year. As they walked out after signing the transfer papers, the lawyer turned to Swanson, saying, “You know, we talk so much about representations and warranties, but I want you to think about this transaction as though you were buying a car off a used car lot—‘buyer beware.’”
Swanson was shocked. “‘Buyer beware’? What was that supposed to mean?” he said later. “We had just spent millions of dollars and he had the gall to say ‘buyer bewa
re’?”
Paolo’s decision to sell marked a critical turning point in Gucci’s history. Although he had the smallest shareholding of the family—11.1 percent in Gucci America, 3.3 percent in Guccio Gucci SpA, and various stakes in Gucci’s French, U.K., Japanese, and Hong Kong companies—Paolo became the linchpin that definitively ruptured the sanctity of family control. His decision effectively stabbed his father and his brothers in the back by handing majority control to Maurizio and his new financial partners. There was little choice for them but to follow in his footsteps or remain minority shareholders in their own company. Though Paolo had fought Maurizio alongside Aldo, Roberto, and Giorgio, his own rupture with his father and brothers ran deeper, and he turned his back on them in the end—as he felt they had with him.
Maurizio now had a secure majority of Gucci, thanks to his alliance with Morgan Stanley and Investcorp. It was time to end the war with Aldo over Gucci America. Aldo and his sons had brought suit in July 1997, attacking De Sole’s management and calling for the company to be liquidated.
“You have taken a real thoroughbred racehorse and reduced it to a carriage horse!” Aldo wrote to De Sole at the time.
Now that Maurizio controlled the board, there were no longer grounds to say that the company was deadlocked and should be dissolved. Paolo, in the meantime, had withdrawn his support of the charges against Gucci America.
“It was a very dramatic hearing,” recalled Allan Tuttle, the lawyer with Patton, Boggs & Blow who then represented Maurizio. When Tuttle and his team presented the ownership change before Justice Miriam Altman in New York’s Supreme Court, Aldo’s lawyers jumped up in protest, requesting time and more information in an effort to stop the judge from throwing out the suit. Justice Altman, who by this time had seen one Gucci case too many, cut them short. “I know every piece in the Gucci line and I know that two-thirds of the price of every wallet goes to lawyers’ fees. It’s quite clear what happened,” she said as she pounded the gavel. “You’ve been stabbed in the back!”
Maurizio’s elation over the buyout of Paolo’s shares and his new relationship with Investcorp buoyed his optimism in the face of a steadily rising tide of legal problems in Italy. On December 14, 1987, a Milan magistrate called for Maurizio’s indictment for allegedly forging Rodolfo’s signatures on his Gucci share certificates. The indictment was returned in April 1988. According to the charge, Maurizio had not only forged the signatures, he owed the government a total of 31 billion lire (or about $24 million) in unpaid taxes and fines. On January 25, 1988, Maurizio was indicted for illegal export of capital for buying the Creole and again on February 26, for the $2 million he had paid to Paolo under the agreement they had reached that sunny afternoon in Geneva. In July, however, the tide began to turn in Maurizio’s favor. Maurizio’s lawyers struck an agreement with Milan magistrates, who revoked his arrest warrant. He was required to come back and face the charges against him, but he would not have to go to jail. In October, Maurizio appeared in a Milan court to defend himself from the accusations that he had falsified Rodolfo’s signature. Maurizio stood up and produced his father’s will. On November 7, the Milan court convicted Maurizio of tax fraud in connection with his falsification of signatures on his father’s will, gave him a one-year suspended sentence, and told him he had to pay 31 billion lire in back taxes and fines. His lawyers immediately appealed and worked out a financing agreement under which the court also restored Maurizio’s voting rights over his shares. On November 28, a Florence court acquitted Maurizio of the foreign exchange violations after a reform of financial regulations made the export of capital no longer an offense. Maurizio was finding his way out of the net.
In the meantime, Morante made the rounds of the other Gucci cousins. By that time, Paolo’s brothers, Roberto and Giorgio, each controlled 23.3 percent of Guccio Gucci SpA after Aldo had transferred his shares to them back in 1985. They also owned 11.1 percent each in Gucci America and, as Paolo had, varying minority stakes in each of the overseas operating companies. Aldo had retained just 16.7 percent of Gucci America, in addition to his holdings in the overseas units. Morante met Roberto Gucci in the frescoed offices of Gucci’s intimidating Florentine lawyer, Graziano Bianchi, a dark, cultured, Machiavellian personality with above-average intelligence. Morante explained that he was an investment banker with Morgan Stanley in London and had important business to discuss with them, after which Bianchi personally frisked him to make sure he wasn’t wearing a hidden recording device. Morante sat down in one of the antique high-backed wooden chairs in front of Bianchi’s imposing wooden desk and Roberto remained standing. Morante got right to the point.
“I am here to tell you that there has been a change in the shareholding structure of the Gucci company,” Morante said. The two men stared at Morante, dumbfounded. “Morgan Stanley has bought out Paolo Gucci’s shares.”
“Hehhhh, hehh,” said Bianchi, uttering a short, cynical laugh that sounded more like a cough, giving the impression he suspected all along something like this would happen.
Roberto, still standing, froze.
Morante let the information sink in.
“Ecco! Roberto!” Bianchi’s rough voice broke the silence. He waved an elegant hand toward Morante as though presenting him. “Our new shareholder!”
Morante had more to say.
“My visit here today is not just to inform you of what has already taken place, but to say that we have no intention of stopping here. We are acting on behalf of an international financial investor who at this point wishes to remain anonymous. We are committed to going forward.” He paused, studying the reaction on the faces of the two men. Bianchi had a gleam in his eye, and Morante could tell that his calculating mind was working fast. Roberto sat down on another wooden chair as though all the air had gone out of him, pain playing across his face. Pain from his brother’s betrayal, from the possibility that Maurizio would emerge victorious, from the implications for his future and that of his family.
Morante stopped next in Prato, where he made the same presentation to Annibale Viscomi, Giorgio Gucci’s accountant. Subsequently he met with Giorgio’s son Alessandro, who acted as his father’s agent. Morante entered into negotiations with the two brothers—separately.
Morgan Stanley closed with Giorgio at the beginning of March 1988, and with Roberto at the end of March. Roberto held back a 2.2 percent stake in a final, desperate play to strike a deal with Maurizio—together they could have controlled the company. Maurizio said no—he had already aligned himself with Investcorp.
It quickly became clear to the outside world that something big was afoot at Gucci. Journalists called daily, and their papers speculated about shifts in Gucci’s ownership structure. In April 1988, Morgan Stanley confirmed it had bought 47.8 percent of Gucci for an international investment group, but nobody knew who the mystery buyer was.
By June 1988, Investcorp decided to identify itself and confirmed it had acquired Morgan Stanley’s “almost 50 percent stake” in Gucci, and had reached an agreement with Roberto Gucci for his 2.2 percent stake. However, Roberto didn’t capitulate until March of the following year after failing to convince Maurizio to make a deal with him. Those events have left Roberto bitter and hurt to this day. “It was like losing my own mother,” said Roberto years later.
Now Investcorp had to acquire Aldo’s 17 percent stake in Gucci America to complete its 50 percent holding in Gucci. Paul Dimitruk called Morante. “It’s time to make the final push with Aldo,” he said.
In January 1989, Morante flew the Concorde to New York, where he met Aldo in his apartment, not far from Gucci’s Fifth Avenue store. Banned from Gucci’s executive offices, Aldo used his apartment for business appointments. When Morante arrived in late afternoon, Aldo opened the door himself and graciously ushered Morante into an elegantly furnished drawing room. Over the years, the walls had become a mosaic of photographs of Aldo smilingly greeting presidents and celebrities, as well as plaques, certificates, and symbolic city key
s testifying to Aldo’s accomplishments in the United States. More memorabilia were elegantly displayed on end tables and coffee tables around the room. Aldo offered Morante a coffee and slipped out to prepare it himself, while Morante studied the souvenirs that told Aldo’s story.
“It struck me how well integrated Aldo felt in the United States, where he had met incredible success, yet had never adapted to its fiscal system,” Morante recalled. “He welcomed the celebrity and glamour the country offered him, but hadn’t accepted the rules of the game—and had paid dearly for it.”
Aldo—who knew exactly why Morante had come—had dressed impeccably for their meeting and took care to impress the investment banker with his charisma and style. He sat down amicably with Morante, telling him his story—the store openings, the products, the charities, the awards—glancing at him furtively from time to time out of the corners of his blue eyes from behind thick glasses in a way that reminded Morante of a cat. He dominated the conversation and Morante couldn’t help but think that Aldo truly had what Italians call fascino—and was keen to show it. Morante realized where Maurizio had gotten his storytelling skill, his vibrancy, his anecdotes. He listened as the hour grew late.
When Aldo finished, he looked Morante in the eye. “Now we can talk about why you’ve come,” he said.
Aldo knew he had no choice but to sell—his sons, to whom he had generously ceded his shares long before his death—had already walked out of Gucci’s door; the only thing he could do was follow. With only 17 percent of Gucci America, Aldo no longer had any authority over the company’s affairs. Suddenly Aldo’s gracious tone grew angry.
“The only thing I want to ensure is that my bischero of a nephew doesn’t have anything to do with this!” Aldo intoned. “If he wins out, it is the end of everything I have created! I still care for Maurizio—despite all that has happened between us—but I am warning you, he is not equipped to wear the Gucci mantle. He will not be able to carry the company forward!”
The House of Gucci Page 20
