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LVMH + DKNY

The House of Vuitton makes offering for the House of Karan

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LVMH-Moet Hennessy Louis Vuitton has offered $195 million in cash to acquire Donna Karan International in a deal that might finally provide the DK operation with financial peace of mind. In making the offer, LVMH said it wanted to expand the company's revenues and beef up overseas sales. In a related move expected to pave the way for the bigger deal, LVMH purchased Gabrielle Studio, the company that holds all of the Donna Karan trademarks.

Since it went public in 1996, the house of Karan has had a great impact on the fashion world but a negative impact in the financial community. With Karan herself acting as ceo as well as chief designer, the company was accused of running up expenses uncontrollably, spending heavily on foreign travel and on expensive fabric, much of which ended up going unused. After starting Gabrielle Studio, Karan and husband Stephen Weiss collected royalties of as much as 3.5 percent of sales, a deal analysts felt was indulgent given the main company's shaky profitability. In 1997, the first year DKI had operated as a public company, it lost $81 million while Karan and Weiss earned $17.6 million in royalties. Last year, Donna Karan International paid Karan and Weiss $25 million in a year that the company earned only $10 million in profits. DKI went public at $24 a share in 1996; the LVMH offer amounted to $8.50 a share.

Though it has been unusual for European companies to show much interest in U.S. design houses, LVMH is clearly attracted to the Karan brand and trademarks and its potential overseas. DKI currently gets 35 percent of its revenues from overseas and ceo John Idol calls it the fastest-growing area of the company.Myron Ullman, LVMH managing director, said, “Donna Karan has built a well-respected global brand with opportunities in accessories and to expand outside the U.S.” But analysts also point out that the Karan name has become licensed to a wide array of products and is widely distributed through mid-price U.S. department stores, perhaps robbing it of some of its exclusive appeal.

LVMH owns such formidable European fashion brands as Louis Vuitton, Givenchy and Christian Lacroix. It was recently embroiled in a highly publicized attempt to gain control of The Gucci Group. But this will be its first ownership of a U.S. design house. It said it would use its retail expertise to open new Donna Karan boutiques around the world, freeing the brand from its dependence on department stores.

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