Negotiations between the two largest shareholders in Gucci, the luxury goods group, have ground to a halt. The two sides in the dispute - LVMH Moet Hennessy Louis Vuitton SA and Pinault-Printemps-Redoute SA - have both issued conflicting statements indicating just how bad relations between the two companies have become.

LVMH Moet Hennessy Louis Vuitton SA stated that it "has been informed that recent negotiations between Pinault-Printemps-Redoute SA and Gucci Group NV concerning a public offer by PPR for all Gucci shares with a view to resolving the current conflicts among the parties have failed. LVMH was prepared to tender its Gucci shares to PPR in such an offer. However, despite lengthy negotiations, Gucci and PPR could not agree on the terms of the public offer to all shareholders. As a result, LVMH will retain its Gucci shares.

"LVMH understands, however, that during the course of these negotiations there was a positive development. The Gucci Supervisory and Management Boards made clear that they would not permit PPR to acquire a majority of Gucci's shares and take absolute control of the company without PPR launching a public offer for all Gucci shares at a price that would include a control premium.

"LVMH supports this position, and in order to avoid continuation of the litigation between LVMH and Gucci, LVMH has written to Gucci's Supervisory and Management Boards seeking confirmation.

"Pierre Gode wrote: "Kindly explain to us - and to all Gucci shareholders - precisely what limitations and procedures prevent PPR from acquiring additional shares in Gucci just over three and a half years from now, without providing a fair exit opportunity to all shareholders."

"If Gucci is able to provide assurances that there will be no change of control without a full bid at a fair price including a control premium, LVMH and Gucci should be able to explore a settlement that in the interest of all Gucci shareholders."

Gucci Group NV (NYSE: GUC)hit back with:

"Gucci notes the press release issued by LVMH. It misrepresents the facts.

"The facts are these. For a period of several weeks, LVMH and PPR were negotiating a transaction in which LVMH would agree to tender its 20 million shares into an offer by PPR to all shareholders at $100. PPR, respecting its obligations, consulted regularly with Mr. Domenico De Sole, President and Chief executive officer of Gucci, Gucci's independent directors and Gucci's independent financial and legal advisors. Gucci's primary objective, in its discussions with PPR, was protecting the interests of the independent shareholders.

"At Gucci's request, PPR agreed to reinforce the Strategic Investment Agreement to preserve the independence of Gucci and the operating autonomy of Gucci's management, notwithstanding the increased ownership position of PPR in Gucci which would result from PPR's purchase of Gucci shares tendered in the $100 offer. In addition, Gucci obtained a commitment from PPR to make a second offer in eighteen months to four years, at the then fair market value, plus a control premium. PPR also agreed that in no event would the second offer be at a price of less than $85 per share. LVMH initially opposed the second offer, despite the fact that it was clearly in the interest of the independent shareholders, although LVMH later appeared to accept the concept of such a second offer.

"Gucci viewed PPR's $100 offer to be at a premium to market price, but not reflecting a control premium. Gucci was not prepared to have control conferred on PPR unless a control premium was paid. Therefore, Gucci proposed a two step transaction in which Gucci's independent shareholders would be offered a choice of an exit at a price above market, or an exit in eighteen months to four years at fair market value, including a control premium. Had such a two step transaction been agreed, the decision to accept or reject the first step $100 offer would have resided entirely with shareholders.

"Gucci's actions have been, and will continue to be aimed at securing value for all shareholders."

Gucci Group NV is one of the world's leading multi-brand luxury goods companie. Through the Gucci, Yves Saint Laurent, Sergio Rossi and Boucheron brands it designs, produces and distributes high-quality personal luxury goods, including ready to wear, handbags, luggage, small leather goods, shoes, timepieces, jewelry, ties and scarves, eyewear, perfume, cosmetics and skincare products. The Group directly operates stores in major markets throughout the world and wholesales products through franchise stores, duty free boutiques and leading department and specialty stores. The shares of Gucci Group NV are listed on the New York Stock Exchange and on the Amsterdam Stock Exchange.