The House of Gucci

by Sara G Forden

  Aldo had moved to divorce Olwen in December of 1984, many years after their marriage had ceased to thrive. Although they no longer lived together, he visited her when in Rome, moving in and out of the villa he had built off the Via della Camilluccia as freely and comfortably as though in his own home. His request for a divorce shocked Olwen, who was frail after suffering an attack of thrombosis in 1978. Olwen stood her legal ground, though she had never obstructed him from doing what he wanted. Aldo had pursued his lifestyle where and with whom he pleased—even marrying Bruna in the United States.

  Aldo had spent the Christmas holidays quietly in Rome with Bruna and their daughter, Patricia, but he had come down with a virulent, worsening flu. That Thursday night he quietly slipped into a coma; Friday his heart stopped beating.

  At the church, Giorgio, Roberto, Paolo, and their families took their places in the front pews near Aldo’s casket. Maurizio had flown down from Milan with Andrea Morante. As they entered the church, Morante stayed along the back wall, not wanting to intrude on such a personal, family moment, while Maurizio walked forward to stand alone at one side of the church.

  On the opposite side of the church, off to one side, stood Bruna and Patricia, not sure of their proper place in the ceremony until Giorgio welcomed them and brought them over to stand with his family in one of the pews. Roberto accompanied his elderly and frail mother, Olwen, and stood by her protectively. Shortly thereafter, she was admitted to a Rome clinic for her poor health. Even in death, the irrepressible Aldo stirred up controversy: he had left his American estate, worth an estimated $30 million, to Bruna and Patricia, a move that was contested by Olwen and two of their three sons, Paolo and Roberto, although the families later reached an amicable solution.

  As Maurizio stood by himself in the chilly church, he looked down at his clasped hands in front of him and let the rise and fall of the priest’s voice float through his mind. He pictured Aldo scaling the stairs of his Via Condotti office two at a time, barking orders to his salesclerks right and left, or holding court in the New York store, signing Christmas packages. His mind’s ear heard Aldo’s voice repeating his old adage about the dynamics of the family—“My family is the train, I am the engine. Without the train, the engine is nothing. Without the engine, well, the train doesn’t move.” Maurizio smiled. As the mourners around him shifted their feet and dabbed at their eyes with soggy tissues, Maurizio unclasped his hands, then clenched and unclenched his fists as though for warmth.

  “Now I must be both the engine and the train,” he said to himself. “And I must bring Gucci back under one roof.” He repeated his personal mantra over and over again: “There is only one Gucci, there is only one Gucci.” Investcorp had served him well, helping him put an end to the family power struggles, but it was time to do what he had dreamed of for so long—bring the two halves of the company together. He knew that Aldo, despite their differences, would have wanted that. Only he, Maurizio, could bring continuity to Gucci—he was the link between the past and the future. In December, Maurizio had told Nemir Kirdar he wanted to buy back the outstanding 50 percent of Gucci from Investcorp, and Kirdar had agreed. Maurizio wanted to carry out the restructuring himself—he wanted to achieve his dream for Gucci without an outside partner.

  After the service, Maurizio lingered to greet his relatives and many of the longtime Gucci employees who had attended the funeral. Giorgio, Roberto, and Paolo received him coolly. They would never forgive Maurizio for the way he had taken over Gucci and for humiliating their father. Maurizio had become an easy scapegoat for the deep sense of loss they felt. Seeing him at Aldo’s funeral, dressed in his characteristic gray double-breasted suit and accompanied by Andrea Morante—the man who had bought them all out—didn’t make them feel any better. On the drive back to Florence for Aldo’s burial, Maurizio reiterated his promise to himself that he would do everything in his power to get all of Gucci back.

  Maurizio had successfully negotiated an agreement to buy Investcorp’s 50 percent stake in Gucci for $350 million. That same January, at Investcorp’s annual management committee meeting in Bahrain, Nemir Kirdar stood up before his colleagues and announced not only that Investcorp had agreed to sell Maurizio its stake, but that it would do everything to help him arrange the financing to do so.

  “There is no more important project on our table than helping Maurizio get financing to buy us out,” Kirdar said, looking around the room at his team. “We have played our part, we have assembled the shares, now Maurizio Gucci’s name is on the door, we must let him take the company and go his own way.”

  Bob Glaser, one of Investcorp’s senior executives, protested to Kirdar that it was highly unusual for a seller to help arrange financing for the buyer. He also pointed out that Maurizio didn’t have the tools to explain the Gucci business to the banking community in a way they could understand. Glaser—who hadn’t been involved in the acquisition of the initial 50 percent—went through Investcorp’s files on Gucci, looking for information.

  “I was shocked that we didn’t have even the basic level of financial and background information on Gucci that we were used to having before making an initial investment,” Glaser recalled. He put Rick Swanson, who had been working closely with Maurizio, on the job; his mission was to research and write a detailed document that would describe the Gucci business and its potential.

  “Swanson was doing the work that should have been done by Maurizio—for free!” Glaser pointed out.

  Swanson quickly discovered that the task was easier said than done. He struggled to portray Gucci’s worldwide companies in Italy, the United States, England, and Japan as a unified whole—when in fact each functioned independently.

  “I had to take this disparate group of companies with no global management team and a vision that was only starting to be formed and pull it together into a cohesive business and financial plan that the bankers could understand. It was something that didn’t really exist,” Swanson said.

  Gucci had evolved constantly under Maurizio’s restructuring program and Swanson struggled to incorporate all the changes. Maurizio had slashed the canvas business, revamped the product, and closed stores that weren’t up to his new standards. He bought the Villa Bellosguardo and talked about selling off some New York real estate to recoup some fresh cash. Through it all, Investcorp gave him a free hand.

  “The horse was out of the barn!” Swanson said. “We owned fifty percent but we could not control what he was doing.” Swanson flew to Milan and sat down with Maurizio at the flip chart in the conference room, and together they drew boxes and sketched in the management structure. Maurizio had a modern corporate management framework all figured out, including positions in strategy and planning, finance and accounting, licensing and distribution, production, technology, human relations, image, and communications.

  “Then we had to price it out,” said Swanson. “Maurizio had never bothered to put a figure on what it was going to cost to add all these new positions,” Swanson said. The figure, including the elegant new Piazza San Fedele headquarters, came to more than $30 million—an enormous increase, especially in view of the sharp cuts Maurizio had made in products and distribution. Maurizio’s plan left Swanson aghast.

  “Maurizio, in this region, Gucci did $110 million last year,” Swanson said, pointing to his charts.

  “Okay,” Maurizio replied, leaning back in his chair and squinting his eyes in mock concentration. “One hundred twenty-five, one hundred fifty, one hundred eighty-five.”

  Swanson looked at him blankly.

  “What do you mean?”

  “Those are the projections, no?” Maurizio answered, looking matter-of-factly at Swanson.

  “Ahh, are you doing those on a percent basis?” Swanson countered, ever the accountant, trying to follow Maurizio’s logic.

  “Oh, no, no, no, percents are irrelevant,” Maurizio said, waving his hand and clucking his tongue. “One hundred twenty-five, one hundred fif—no, let’s make that one hun
dred sixty…”

  Swanson packed up his documents and flew to London, where he poured out his frustrations to Eli Hallak, Investcorp’s chief financial officer, and Bob Glaser, a tough, feet-on-the-ground, red-bearded banker whom Kirdar had also asked to negotiate the terms of the sale to Maurizio.

  “Bob,” Kirdar had said, “you’re the only guy I can trust not to get seduced by Maurizio!” Glaser was one of the close-knit team that Kirdar had recruited from Chase’s Middle East operation. He was a clever clear-thinking, straight-talking man who knew how to get things done.

  Swanson tried to explain his dilemma to the two Investcorp executives. “I am trying to write this book for Maurizio and make this as easy and risk-free and digestible for the bankers as possible,” he complained. “And while I am doing it, not only does the ball keep moving, but Maurizio is pulling sales projections out of thin air!”

  Glaser and Hallak looked at each other and shook their heads. Neither of them had been impressed by Maurizio’s business acumen and both doubted he could pull off the repositioning by himself.

  Glaser feared Maurizio had launched into the repositioning too fast—cutting sales and increasing costs.

  “Investcorp had never signed off on the financial implications of Maurizio’s plan for Gucci,” Glaser recalled. “It was all very conceptual—Maurizio presented his plan and Kirdar had said it sounded good to him.”

  Swanson finally finished his report—a massive document of some three hundred pages, including company history, family trees, detailed fact sheets, schedules of assets, stores, and licenses. The “Green Book,” as Swanson and his colleagues nicknamed the detailed information memorandum, included projections—a temporary decline in sales and operating performance from pruning products and stores. Then the curve came back up as sales were scheduled to improve.

  Investcorp helped Maurizio sell his proposal to the banks, identifying the institutions, sending out the memorandums, and introducing Maurizio to the bankers themselves.

  Not one of the major international or Italian banks would finance Maurizio’s business plan. One after the other, more than twenty-five financial institutions turned Maurizio down.

  “It didn’t work,” Swanson said later. “The company wasn’t doing well, the numbers were heading south. We spun wonderful stories and all the bankers loved Maurizio and it was a wonderful vision, but when you dug below the surface and looked at the numbers, the bankers could see that it fell apart—even though Maurizio could always find some wonderful anecdotes. To hear him tell it, the business was not only performing, but exceeding expectations! Maurizio was like Scarlett O’Hara in Gone With the Wind—tomorrow was always another day,” Swanson said. “He truly felt that if he couldn’t get the financing today, he would get it tomorrow; if he could just survive another day, he would win.”

  In the meantime, Glaser had spent months trying to negotiate a sales agreement with Maurizio—going through three separate full-fledged contract negotiations, which employed squads of lawyers and pounds of documents. Glaser began to get the feeling that Maurizio was cleverly stringing him along—perhaps an effort to keep him busy and engaged while he searched for the financing.

  By the summer of 1990, it became clear even to Maurizio that there wasn’t going to be any financing. He and Investcorp changed course once again and agreed to go forward together as fifty-fifty partners under the principles they had laid down three years earlier in the Saddle Agreement. To do so, Maurizio told Investcorp he wanted to streamline all of Gucci’s operating companies around the world into a single holding company—a giant modernization step in the corporate structure of the Gucci business. Kirdar agreed, and assigned Bob Glaser the task. Glaser agreed to do it on one condition: that the two partners establish a working set of rules about how they were going to govern the company and the interests of each shareholder. After seeing Maurizio’s actions in the years since Investcorp made its investment in Gucci, Glaser wanted to make sure the investment bank had a meaningful say in the running of the business.

  The process of fleshing out a precise, legal operating structure for the relationship between Maurizio Gucci and Investcorp put a major strain on their relationship. “Trust is one thing, but we had to spell out how we were going to protect our investment if one day we did not see eye to eye. That’s what started the conflict,” Kirdar said. “It became a legal nightmare. Maurizio had always been attacked, there was never anyone in his life whom he could really trust and now, all of a sudden, the comfort that he had taken in Investcorp turns into another nightmare of people who he is afraid want to take advantage of him.”

  At times, the discussions between lawyers on both sides became so confrontational that Maurizio would call a time-out and ask to see Kirdar. He would go to London, shaken by all the obstacles that had been thrown up, and they would sit in the easy chairs in front of the fireplace and talk.

  “Tell me, Maurizio, what is the problem?” Kirdar would say, his green eyes smiling benevolently at his visitor.

  “Nemir, they are being too harsh,” Maurizio would say, shaking his head.

  “It is not our intent to be harsh,” Kirdar would assure him. “If that is too harsh, let’s change it. I am not trying to attack you or trick you; my lawyers are not either. They are just doing their job.” And Maurizio would leave, reassured, until the next conflict. By the time the whole process was over, however, Maurizio hated and mistrusted Bob Glaser, whom he nicknamed “the devil with the red beard” or, alternatively, “Mr. What-if?”

  “I had to play the hard guy,” admitted Glaser later. “It’s a role I played reasonably well and Maurizio didn’t like it at all. I was the first person at Investcorp to tell him that he couldn’t have something he wanted. My experience with Maurizio was that first he would try to charm you. Then he would try to intimidate you. If he could neither charm you nor intimidate you, he would just back down.”

  Allan Tuttle—true to his promise to Rodolfo—had continued to represent Maurizio personally and was on the front lines for his client in the dealings with Investcorp. Tuttle was a punctilious, tenacious advocate for Maurizio—so much so that Glaser, exasperated, finally forced Maurizio to take him off the account.

  “I knew Tuttle was doing a damn good job for Maurizio, but I also realized that I was never going to get the deal signed as long as he was around. I’d had it! I told Maurizio I wasn’t going to another meeting if Tuttle was in the room and that he had better find another lawyer!”

  Afraid of scuttling the entire deal, Maurizio reluctantly agreed, and hired another lawyer. As a result, Investcorp won several key points in their agreement—which ultimately amounted to some two hundred pages—that would profoundly affect the future of the company. Among other provisions, the agreement forbade Maurizio to put up all or part of his 50 percent stake in Gucci as collateral for financing—although Investcorp was free to do so if it wanted.

  “We were a financial institution; borrowing and lending was part of our business,” Glaser said. “But we couldn’t risk the possibility that Maurizio could borrow, default, and leave us with a new partner. Nemir Kirdar insisted on this.”

  Asked at the last minute to review the agreement for compliance with New York law, Tuttle was astonished, in particular at the limitations it placed on Maurizio’s use of his shares. “Maurizio, they have tied you up tighter than a drum!” said Tuttle, who tried to make some last-minute changes that would have given Maurizio a little more flexibility.

  “He was a rich man, but he didn’t have any money,” Tuttle said later.

  Glaser went even further. After the grueling process of hammering out the new business partnership between Investcorp and Maurizio Gucci, he stood up at an Investcorp meeting in London and denounced Maurizio as either an incompetent CEO, possibly a crook, or both. A murmur traveled around the room of Investcorp executives, most of whom had been charmed by Maurizio—it was as though Glaser had said the emperor had no clothes. Nemir’s piercing green eyes narrowed in
anger.

  “You have no right to say those things about Maurizio!” he shouted. “We are trying to help him!”

  “I’m sorry if you don’t agree with me,” said Glaser. “It’s just my opinion. I can’t prove anything, but there is no reason for the company to be generating the losses that it is! I think it’s suspicious and I want to hire an independent auditing firm to go through the books from start to finish!”

  Bob Glaser, who by then was ready to return to the United States after finishing the tasks at Gucci that Kirdar had assigned him, then recommended that Kirdar replace him on the Gucci account, recognizing how damaging his stand had been to the relationship. Kirdar agreed and asked a thoughtful, soft-spoken banker he had recently hired named William Flanz to take over the case. Flanz came to Milan a few times that fall and started taking note of what was going on at Gucci.

  In the meantime, Andrea Morante had carved out a role for himself at Gucci’s Milan headquarters as chief operating officer, although he had never been given an official title. He helped Maurizio hire his new team, reviewed pricing worldwide, and acquired sole control of Gucci’s business in Japan from its long-standing partner, Choichiro Motoyama. An investment banker at heart, Morante started working on a project he hoped would resolve everybody’s problems. He crafted an agreement with Henry Racamier, the expelled chairman of Louis Vuitton. Racamier had formed his own group, Orcofi, as a vehicle for acquisitions in the luxury goods business he hoped would one day rival those owned by Moët Hennessy Louis Vuitton (LVMH). Morante felt Racamier would make a strong partner for Maurizio and could help develop Gucci’s business in the Far East, where Racamier had had significant business success with Louis Vuitton. Morante structured a deal that would finally give Maurizio control of Gucci with 51 percent, bring in Racamier with 40 percent and a say on the board, leave Investcorp with a symbolic presence of 7 or 8 percent, and award the rest to management—namely, to Morante himself.