The battle to control Gucci, the Italian fashion house, has set two of the new titans of French business on collision course.

Enlisted in Gucci's defence is Mr Francois Pinault, probably France's richest man. His opponent is Mr Bernard Arnault, chairman of the French luxury goods group LVMH, who is known as the "Napoleon of luxury" after his reputation as a ruthless takeover strategist.

LVMH began building a large minority holding in Gucci in January. But when Mr Pinault stepped in 10 days ago as the Italian group's white knight, Mr Arnault was forced to make a full takeover bid, valuing Gucci at $8 billion (#7.34 billion).

It was not something he wanted to do.

The tall, impeccably elegant Mr Arnault had been prepared to freeze LVMH's stake in Gucci at below 35 per cent for at least three years.

In the meantime, LVMH would get "acquainted very well" with Gucci and submit "good ideas" on how to achieve economies of scale that benefited shareholders in both companies.

If the LVMH chairman loses out to Mr Pinault, he will have a powerful new competitor in the luxury goods sector that LVMH has come to dominate.

The "battle of the handbags" and the astonishing machinations in the banking sector illustrate how competitive pressures are forcing French businessmen out of smoke-filled rooms and into the far more bruising arena of Anglo-Saxon takeover fights.

L'Humanite, the Communist party newspaper, recently captured the mood with a front page portraying the two men as boxers. "Le Combat du Fric [cash]" said the headline. "On the left, Bernard Arnault, FFr45.5 billion (#6.94 billion), on the right, Francois Pinault, FFr108.3 billion, clash for control of the luxury group Gucci."

Sitting in his Paris office near the Arc de Triomphe, Mr Arnault, who was 50 this month, looks about as far removed from a pugilist as it is possible to imagine. In the world of business, though, he doesn't pull his punches.

He is admired by some, criticised by others. This is partly, one suspects, because of a cold, distant demeanour; partly too for daring to inject hard-nosed management methods into a quirky, egotistical industry.

He clearly believes that size, if not everything, confers considerable advantage in an industry that is vulnerable to fluctuations in the economic cycle.

"I think there has been a trend over the past 10 to 15 years for medium-sized brands to concentrate in larger groups," he says. "The main reason is globalisation and the necessity for a brand and for its management to be stronger and stronger."

Mr Arnault, of course, has been one of the main architects of this concentration of ownership. Under his stewardship, LVMH has assembled an unmatched collection of luxury brands in the past 10 years. Originally a merger between Louis Vuitton and Moet Hennessy, the group's portfolio now includes Kenzo, Celine and Krug, among many others.

"When you want to be global you have to invest a lot in shops, in research and development, in communications. It is sometimes difficult for a medium-sized company to do that, especially through tough times.

"Even in 1998, with the Asian crisis, we had areas of the group which were booming."

As he built the LVMH empire, Mr Arnault became known as a formidable and rigorously unsentimental adversary. He was a fierce opponent of the merger two years ago between Guinness, in which LVMH owned an important stake, and Britain's Grand Metropolitan. The merger, Diageo, went ahead only after Mr Arnault had secured a £250 million (#376 million) payment to LVMH.

Equally emblematic was the protracted battle for control of Chateau d'Yquem, arguably the best white wine in the world. This erupted in late 1996 and turned into a bitter conflict between Mr Arnault, personifying the forces of big capitalism, and supporters of family-owned national treasures.

Last December, a court in Bordeaux confirmed LVMH's ownership of 37.5 per cent of the winemaker.

He believes one of the keys to success is to be "very respectful of our brands and of their culture". He does not seek to combine what makes these brands successful. Each company is organised "with the same strengths that make the success of a small independent company".

"We try to consider our chief executive of a brand as an entrepreneur owning his brand," he says. Managers are encouraged to aim for "very high targets in terms of return on equity and profitability". Unusually for a French company, stock options are an important part of the incentive package.

Mr Arnault says there is no need for a customer who buys a Vuitton suitcase or a Dom Perignon bottle to know that the same group is behind them.

Behind the scenes, however, in areas such as purchases, taxation and logistics, Mr Arnault believes companies can be managed with economies of scale. LVMH has identified more than FFr400 million of possible synergies between Vuitton and Gucci, FFr160 million of which would come from purchasing and logistics. "What we can bring is a lot of economy in the cost of buying things, the cost of leather for instance," Mr Arnault says.

"The same thing with media buying. There are things that are quite easy to do without interfering."

He is eloquent on the importance - and difficulty - of ensuring that a luxury brand retains its cachet. "In today's world, a brand which is the ultimate luxury, such as Dior, is also selling products that are not that expensive, such as lipsticks.

"In selling this type of inexpensive product you have to keep the dream. That is the difficulty. You have to be very careful not to dilute the brand to a point where it will lose its spirit. That is what Gucci did at one point. Then they had to go back and start again much more cautiously.

"When a product is too successful, you have to stop it because otherwise it will become banal. It pushes you to be very creative - to find another line where you create the same phenomenon."

Designers have an important role to play in ensuring the correct balance is struck. At the same time, the LVMH chairman has not been afraid to ruffle the feathers of the French fashion establishment in his choice of designers. After all, he appointed John Galliano, a flamboyant Briton, to head the quintessentially French house of Dior. He justifies his choice by suggesting that Dior would approve of what Mr Galliano was doing.

"In 1947 when Dior started he was criticised. There were polemics all over the place saying he was doing things that were much too exuberant for the time.

"Do you know what Dior said?" Mr Arnault asks. "`I don't care what people say as long as I am on the front page'."

More than 50 years later, Mr Arnault is attracting the same media attention with his bid for Gucci. It is one of the most important battles of his career. He must be hoping that his famous strategic sense does not desert him now.