The boss of LVMH and the Hermès family in pact
PARIS – It’s been almost four years since fashion mogul Bernard Arnault shocked the French business world and added billions to his fortune by sneaking a large stake in Hermès, the jewel of the luxury world.
Mr. Arnault, the richest man in France, finally built his stake in nearly a quarter of Hermès shares. And in doing so, he sparked an acrimonious public battle in which the family that controls Hermes attempted to force him to sell his shares.
On Wednesday, both sides claimed victory.
Mr. Arnault and Axel Dumas, the CEO of Hermès and descendant of the founder, said in a joint statement that they had accepted a plan proposed by a Paris commercial court “to put an end to the conflicts between the two groups and restore a climate of positive relations between them.
Under the agreement, LVMH Moët Hennessy Louis Vuitton, the luxury giant controlled by Mr. Arnault, will sell its entire stake in Hermès to shareholders of LVMH. This ends the threat that the French tycoon could walk away with the venerable business, although it leaves Mr Arnault with a residual 8.5% stake. The conditions restrict its ability to purchase additional Hermès shares for at least five years.
“Monsieur. Arnault understood that it had become too complicated to go further,” said Virginie Blin, analyst at AlphaValue in Paris. “It is a smart decision for him to end the war.”
Shares of Hermès, a company known for its handcrafted Birkin handbags and colorful scarves, fell 3.4% in Paris on Wednesday, as the announcement ended speculation of a battle for the buyout and foreshadowed that a large part of the stake held by LVMH would soon be abandoned. on the market.
Shares of LVMH, owner of luxury brands such as Givenchy haute couture clothing, Moët & Chandon champagne and TAG Heuer watches, closed up 2.9%.
LVMH claims to have realized a capital gain of 3.8 billion euros (around 5 billion dollars) on its investment in Hermès. Mr. Arnault’s 8.5% stake is currently worth around € 2.2 billion.
“LVMH will be very cash rich after this,” Ms. Blin said. “The money that was tied up can now be better used with another acquisition or else invested in LVMH companies.”
The French fight began in October 2010 when Mr. Arnault announced that he had built his initial stake through what are known as equity swaps, a type of financial derivative, which allowed him to bypass the Stock market rules requiring that major investments be declared as they reach different ownership thresholds.
While Mr Arnault has always maintained that his intentions towards Hermès were amicable, the family had serious doubts – noting that he was known to have made LVMH the world’s leading luxury company through hard-fought acquisitions. They fought back, accusing him of fraud and waging an uphill battle in the media.
The descendants of Thierry Hermès, a Parisian saddler who founded the company in 1837, control around three quarters of the shares. Joining forces, they created a holding structure to deprive Mr. Arnault of any possibility of taking control.
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The French market regulator concluded last year that LVMH had violated the rules of transparency when acquiring its stake and imposed a fine of 8 million euros, a derisory sum for Mr. Arnault, of which the Fortune is estimated by Forbes at around $ 33 billion. The regulator, however, did not demand that he return his shares.
And there things seemed to be sitting down, a luxury dead end, until now.
But if the resolution announced on Wednesday ends the deadlock, it is by no means simple.
LVMH Moët Hennessy Louis Vuitton will sell its entire 23.2% stake in Hermès International to LVMH shareholders before the end of the year.
Christian Dior, the fashion company that Mr. Arnault also controls and which is the largest shareholder of LVMH, with a stake of nearly 41%, will then pass on the shares it receives to its own shareholders – the first of which is the company. holding company of M. Arnault, Groupe Arnault. . This will still leave Mr. Arnault about 8.5% of Hermès.
Mr. Arnault also agreed that LVMH, Dior and Groupe Arnault would no longer buy Hermès shares for five years.
LVMH and Hermès declined requests for comment.
But a person with knowledge of the Hermès family’s position, who spoke only on condition of anonymity, said the family was happy with the deal, although he did not respond to their request that Mr. Arnault completely abandons his participation.
“Everyone got what they wanted,” she said, “they’re where they wanted to be. There had to be a compromise. “
Another person with first-hand knowledge of the situation said both Mr Dumas and Mr Arnault particularly appreciated the efforts of Franck Gentin, the court judge who coaxed them during the conciliation.
“They are both businessmen and they are both pragmatic,” said the person. “They just wanted to end it.”