The House of Gucci

by Sara G Forden

  “Tell me this, Dottor Gucci,” Morante persisted. “If they decide not to sell, would you be willing to sell to them?”

  Maurizio’s expression darkened as though a shadow had passed across his face. “Absolutely not! Besides, they don’t have the money to buy me out. Before selling to them I would prefer to sell to a third party who I thought had the company’s long-term interests at heart.”

  Morante quickly grasped the solution—to find a third party who would buy out Maurizio’s relatives and become a partner to Maurizio in redefining the Gucci name.

  Morante also realized that Maurizio—for all his apparent wealth—had a cash-flow problem. He questioned him on what assets he might be willing to sell in order to raise some liquidity—and thus be in a stronger negotiating position with his potential new financial partners.

  What he learned surprised him: Maurizio, along with Domenico De Sole and a small group of investors, had quietly purchased control of the venerable U.S. carriage trade department store B. Altman & Company, which had been founded in the late 1860s and by the late 1980s operated seven stores. The investor group installed two former accountants to operate the business: Anthony R. Conti, formerly head of the retail accounting practice of Deloitte Haskins & Sells as CEO, and another former Deloitte partner, Philip C. Semprevivo, as executive vice president. The Gucci name hadn’t appeared in connection with the transaction, and few were aware of Maurizio’s ownership of B. Altman. With Morgan Stanley’s assistance, Maurizio and his partners sold the store for some $27 million in 1987 to an Australian retail and real estate group called the Hooker Corp. Ltd. controlled by a businessman named L. J. Hooker. While the proceeds from the sale represented a welcome influx to Maurizio’s bank account, sadly that sale marked the beginning of the demise of what had been an American retail institution. Within three years, B. Altman was out of business.

  Morante went back to his London office and at the weekly Monday morning meeting of Morgan Stanley’s investment banking division he described his initial meetings with Maurizio Gucci to the group of some twenty colleagues gathered around the conference table. They responded with laughter and raised eyebrows. The Gucci brand name was compelling, but it was also associated with family disputes, lawsuits, and tax schemes.

  “Just make sure we get some loafers out of this one!” one of his colleagues cracked.

  “The Gucci name instantly attracted everybody’s attention,” recalled Morante. “Usually the level of interest in those meetings was measured by how much money people thought we could make on a deal, but in the case of Gucci, it was the association with the name that struck everybody.”

  Though the bankers were intrigued, most of them were highly skeptical that there was any chance of doing a deal in Gucci’s tangle of family conflicts. One young man in the room, however, took Morante’s presentation seriously. John Studzinski—“Studs” for short—was then responsible for the bank’s think tank activity. Today he directs Morgan Stanley’s entire investment banking operation. Studzinski knew that a then-little-known investment bank called Investcorp had made a fortune in 1984 by rehabilitating the historic American jeweler Tiffany & Company and then selling its shares on the New York Stock Exchange. He knew that Investcorp had wealthy clients in the oil-rich countries of the Middle East with a developed taste for investing in luxury brands.

  “They are the only ones crazy enough to consider a deal like this,” Studs thought to himself, “but I bet they could do it.” After the meeting broke up, he took Morante aside and told him about his idea.

  “There was a very low probability of success,” Studzinski said later. “We saw Gucci as a declined brand with a shareholder situation that was all over the map. I regarded this deal as six-no-trump bridge—but we needed to get all the kings and queens in the right place,” he said.

  “It required a lot of patience and determination, but we knew Investcorp had the financing, was keenly interested in luxury goods, and had the patience to deal with an intricate shareholder situation,” Studzinski said. He put in a call to Investcorp’s London representative, a young man from Ohio, Paul Dimitruk.

  A slim, tightly built man with dark hair and dark eyes that could be veiled, piercing, or warm, Dimitruk had a reserved demeanor, a strong dose of ambition, and a black belt in karate. The son of a fireman, he had been born and raised in Cleveland before going to law school in New York. Investcorp’s founder and chairman, an Iraqi businessman named Nemir Kirdar, had plucked Dimitruk from the company’s law firm, Gibson, Dunn & Crutcher, to launch Investcorp’s London operations. Kirdar liked Dimitruk’s experience working on cross-border deals between American and European industrial companies. Eager to expand his horizons and to live in Europe, Dimitruk had moved to London in 1982 as managing partner of the law firm’s London office. He joined Investcorp in early 1985, shortly after the Tiffany acquisition. Dimitruk’s job initially was to help develop Tiffany’s international business and work on other post-acquisition management issues.

  When Dimitruk’s secretary told him John Studzinski was on the phone, he took the call immediately. Despite his young age, “Studs” was already widely admired in the investment banking world for his high-level contacts, expertise in the luxury goods industry, and unusual ability as an American to ingratiate himself in the clubby European business world.

  “Paul, would you folks be prepared to consider Gucci?” Studzinski said into the telephone, sketching out the scenario. “If you agreed with Maurizio Gucci’s vision, would you be willing to help him?”

  Like Morante before him, Dimitruk perked up at the mention of the Gucci name. “We are extremely interested in meeting Maurizio and listening to his story,” he said.

  Once Studzinski got the green light from Dimitruk, Morante called Maurizio from London; Maurizio hardly let Morante finish his greeting.

  “Do you have the deal?” he blurted out.

  “Wait, wait a minute, one step at a time,” Morante protested.

  “We need to move fast, there is no time to waste,” insisted Maurizio, who was still in Milan at that time. He didn’t tell Andrea that he feared serious legal complications because of his relatives’ accusations.

  “I have someone who is interested in meeting you and hearing your story,” Morante said. “Can you come to London?”

  In 1987, Investcorp was hardly known in the financial world outside of private equity circles. Founded in 1982 by Kirdar, Investcorp had established itself as a bridge for clients in the Arabian Gulf to invest in Europe and North America.

  Kirdar was a charismatic man with a sense of mission. He had a high forehead, a hawklike nose, and all-knowing green eyes that bore into yours when he looked at you. His family, from the northeastern city of Kirkuk, was pro-Western and loyal to the ruling Hashemite family at a time when the anti-Western movements of Nasserism, Pan-Arab nationalism, and Ba’thism electrified the Arab world. The 1958 assassination of the royal family and the bloody coup that later brought Saddam Hussein to power forced Kirdar to flee the country.

  After completing a bachelor’s degree at the College of the Pacific in California and working briefly at a bank in Arizona, Kirdar returned to Baghdad, where things seemed to have settled down. He developed a trading company that represented Western firms, but one April day in 1969 Kirdar was suddenly arrested and inexplicably held hostage for twelve days—a show of power by the regime. The experience was enough to convince him to leave Iraq again—only this time he was thirty-two and had a young family to support. Kirdar got a job in New York City with Allied Bank International, a consortium through which eighteen U.S. banks channeled their international business. During the day he worked in the basement of the bank’s East Fifty-fifth Street town house; nights he studied for his MBA at Fordham University. After completing his degree and a brief stint at the National Bank of North America, Nemir was offered a job at Chase Manhattan, then the Cadillac of American banks. It was the right place for an ambitious young man seeking a career in internatio
nal banking.

  During his years with Chase, Kirdar had developed a long-term business plan for the Arabian Gulf area, which had grown rich because of the 1970s oil crisis. First in Abu Dhabi and later in Bahrain, he secured important business for Chase and organized the team that would later join with him in forming Investcorp: Michael Merritt, Elias Hallak, Oliver Richardson, Robert Glaser, Philip Buscombe, and Savio Tung. Cem Cesmig, a country manager at Bankers Trust, became a good friend and also joined the group.

  Kirdar’s idea was to offer wealthy individuals and institutions in the Gulf region attractive investments for the fortunes they had made on oil. Kirdar wanted to connect them to sound real estate and corporate opportunities in the West, and in the process build an Anglo-Arab counterpart to Goldman Sachs or J. P. Morgan—top-notch investment banks known for their deal-making ability. In 1982, he launched his dream in Room 200 of the Bahrain Holiday Inn, with one secretary and a typewriter. By the following year, Investcorp graduated from Room 200 to its own corporate headquarters, Investcorp House, in Manama, and subsequently expanded to London and New York.

  The company’s mission was to buy up promising but struggling companies, improve them with financial resources and advice, and resell them at a profit. Investcorp’s clients could pick and choose their positions in each investment—they were not obliged, as in an investment fund, to automatically take stakes across the board in all of Investcorp’s holdings. No dividends were paid out to clients until the end of the cycle, when Investcorp sold the company, either through a private sale or a stock exchange listing.

  Investcorp’s initial purchases—it bought Manulife Plaza in Los Angeles and took a 10 percent stake in A&W Root Beer, among others—served to develop experience and credibility. But the acquisition of Tiffany & Company in October 1984 from Avon Products, Inc., for $135 million put Investcorp squarely on the deal-making map. After installing former Avon president William R. Chaney as CEO to spearhead Tiffany’s successful turnaround, Investcorp took Tiffany public three years later—securing an eye-popping return of 174 percent per year and a reputation for having rehabilitated an American legend.

  “We felt you couldn’t sell jewelry as though it were cosmetics,” said Elias Hallak, Investcorp’s chief financial officer years later. “We said first we had to bring back Tiffany’s glorious past.”

  As Morante described Investcorp’s background on the telephone to Maurizio, the mention of Tiffany made Maurizio warm to the idea of joining forces with the Arabian banking institution. “He understood that a partner that had restored Tiffany was a partner that was interested in brand names, that cared about quality, and had the financial sophistication to take the company public,” Morante recalled.

  Maurizio told him he could come to London at any time. But over the summer, gale-force winds had churned up a sea of troubles for Maurizio—the court sequester of his Gucci shares, the arrest warrant for the Creole, and the installation of court-appointed custodians for Gucci. If all that wasn’t enough, Maurizio’s personal assets had also been sequestered by a civil court investigating his inheritance from Rodolfo. As Maurizio drove the charging Kawasaki over the Italian border into Switzerland that June day, he wondered what he was going to tell the people at Investcorp—whom he hadn’t even yet met. Once he had settled into his Saint Moritz home, Chesa Murèzzan, he had summoned up his optimism and called Morante.

  “Tell them it is a move by my cousins to sabotage me, tell them that I will work everything out. Tell them that six months from now it will be all over.”

  Morante found Maurizio’s reassurances persuasive and decided to believe him. Even if things didn’t work out as well as Maurizio had predicted, Morante advised Investcorp, Maurizio’s financial and judicial troubles would make it easier for the investment bank to buy him out.

  At the time of Maurizio’s escape in June 1987, a total of eighteen cases were pending in various courts around the world regarding the Gucci family, including two new ones instigated after Paolo also fired off dossiers against Giorgio and Roberto, alleging they had established their own network of offshore companies in Panama to siphon profits out of the Gucci business without paying taxes. In Maurizio’s absence, Giorgio abandoned their alliance and reunited with his brother Roberto. The two brothers carried the next Gucci board meeting in July; together they controlled 46.6 percent of the company. A mistake had been made in depositing Maurizio’s shares, which were represented by a court-appointed custodian, and Roberto and Giorgio prevented him from voting. The two brothers nominated a new board with Giorgio as chairman and reorganized the company themselves even though they didn’t have a legal quorum. Milan lawyer Mario Casella, the court-appointed custodian of Maurizio’s sequestered 50 percent, shook his head. “Here we have to save Gucci from the Guccis!,” Casella muttered under his breath to Roberto Poli, a court-nominated accountant.

  When on July 17 the court nominees formed another board of directors with Maria Martellini as chairman, the Gucci company found itself in a bizarre situation: it had two presidents and two boards of directors—one representing the family and one representing the court-ordered custodians. Aldo Gucci, eighty-two years old and recently released from prison, jumped back into action. He flew to Florence from the United States, took a room at his habitual favorite, the Hotel de la Ville, and helped arrange a compromise between the family and the court representatives: court appointee Maria Martellini was confirmed as chairman, while Giorgio Gucci was named honorary president without administrative powers and Roberto’s son Cosimo became vice president.

  For the first time in the history of the family company, the person in the driver’s seat was not a Gucci. While Martellini struggled to keep the company on an even keel and cleanse it of the family fiefdoms, she installed a bureaucratic, unimaginative custodianship that employees recall as one of the dark periods in Gucci’s history—with the exception of a lucrative license to manufacture Gucci eyewear with Italian producer Safilo SpA that is still in effect today.

  “The company hit a standstill,” one long-term employee recalled. “You practically had to get authorization to buy a roll of toilet paper. It became a company legend that one day to order some letterhead, the company required seven signatures,” she said. “There was no creativity, no progress, it was just survival.”

  With Maurizio out of the picture in Italy, Aldo took the war against him to Gucci America, where Maurizio still controlled his 50 percent stake. The board was at a standoff—Aldo and his sons on one side, Maurizio on the other. Determined to regain control of his company after his bruising ouster by Maurizio three years before, Aldo was in no mood to step softly. He filed a lawsuit against Gucci America calling for De Sole to be expelled and the company to be liquidated. But, once again, Maurizio would surprise him.

  In September 1987, Maurizio flew to London, where he had booked a room at his favorite hotel, Dukes, on St. James’s Place. Near St. James’s Park and the Green Park tube station, Dukes offered posh, intimate lodgings—and one of the best martinis in town. The next morning, accompanied by Morante and Studzinski, Maurizio arrived at Investcorp’s London office, a charming four-story former mews on Brook Street in Mayfair. The men were ushered up to one of the second-floor sitting rooms, furnished with comfortable sofas and chairs and small coffee tables—a refined and intimate setting for doing business. Here Paul Dimitruk, Cem Cesmig, and Rick Swanson greeted them.

  “I will never forget the first meeting we had with Maurizio,” said Rick Swanson, a blond, boy-faced former accountant from Ernst & Young, who had recently joined Investcorp. “It was like waiting for a movie star!”

  By then, Maurizio had fashioned his own engaging style from a mixture of Rodolfo’s drama and Aldo’s verve. He swept in the door ahead of his new banking acquaintances with his swinging cashmere camel-color coat, his longish blond hair, dark aviator sunglasses, and his blue-eyed Gucci smile. The waiting Investcorp executives were transfixed and intrigued.

  “Here comes an Italian w
ith this famous name whom we had never met before. He walks in, he looks like a movie star, his name is on the door of his company,” Swanson said. “But he’s being sued by his relatives, his shares have been sequestered, and he doesn’t even have control! The tremendous infighting between him and his relatives is all over the papers, and the question to us is—‘Would you mind coming in and helping to buy out his cousins?’”

  Maurizio launched into the story of grandfather Guccio, the Savoy days, and the small shop in Florence. In his nearly perfect English, he recounted Aldo’s triumphs with Gucci in the United States, Rodolfo’s design and management role in Milan, and his own experiences as a young man working with Aldo in New York. Then he described the current problems: the cheapening of the brand, the family battles, the tax problems, the great divide between Gucci America and the Italian operation. He expressed his frustrations with trying to move things forward.

  “There is a saying in Italy: The first generation is the one that creates the idea, the second develops it, the third must face the big growth questions,’” Maurizio explained. “Here, my view is diametrically opposed to that of my cousins. How can you tie a company that has 240 billion lire [about $185 million at the time] in sales to a closed family mentality? I believe in tradition, but as a base on which to build, not as an archaeological collection to show to tourists,” he said heatedly.

  “The family war has paralyzed this company for years, at least in terms of its development potential. I often ask myself, how many competing labels have been born and reached success just because Gucci was standing still? Now it is time to turn the page!”

  The small group of investment bankers was hanging on his every word.

  “There are too many cooks in the kitchen,” Maurizio said, his blue eyes intense. “My cousins are all convinced they are God’s gift to the fashion world—but Giorgio is totally hopeless, all he cares about is awarding the Gucci Trophy Cup at the equestrian competition at Piazza di Siena. Roberto thinks he is an Englishman; his shirt collars are so stiff he can hardly move. Paolo is a complete liability whose most significant achievement in life was to put his father in jail!