Ending Standoff, LVMH Boss Agrees to Sell Most of His Hermès Stake

Staff Writer
Columbus Monthly

c.2014 New York Times News Service

PARIS — The fashion mogul Bernard Arnault’s LVMH and the Hermès luxury house have finally made peace, the companies said Wednesday.

The truce comes nearly four years after Arnault, who controls LVMH Moët Hennessy Louis Vuitton and is France’s richest man, set off an epic business battle by stealthily gobbling up more than a quarter of his smaller rival’s shares.

Arnault and the Hermès family said in a joint statement that they had accepted a conciliation procedure proposed by a Paris commercial court “to bring to an end the conflicts between the two groups and restore a climate of positive relations between them.”

Shares of Hermès, a company known for its handcrafted Birkin handbags and colorful scarves, fell about 3.5 percent. The announcement signaled an end to speculation about a takeover battle and the entry onto the market of a large amount of stock that has been untraded since the battle began.

Shares of LVMH, the owner of luxury brands including Givenchy haute couture clothing, Moët & Chandon Champagne and TAG Heuer watches, rose nearly 3 percent.

Arnault shocked the French business world in October 2010, announcing that he had acquired 14.2 percent of Hermès using so-called equity swaps, a type of financial derivative, that had allowed him to skirt stock exchange rules requiring major investments to be declared at certain ownership thresholds.

He subsequently raised his stake further, to nearly a quarter of Hermès, leading to a crisis in the family that has controlled Hermès since its founding in 1837 — all the while insisting that his intentions were friendly.

Hermès, mindful of Arnault’s record of acquisitions, fought back, accusing him of fraud and carrying out a bitter battle in the news media. The family, which controls about three-quarters of the shares, ultimately closed ranks, creating a holding structure to deny Arnault any possibility of gaining control.

The French market regulator concluded last year that LVMH had broken transparency rules in acquiring its stake and fined it 8 million euros, or about $10.5 million — a small matter for Arnault, whose fortune is estimated by Forbes to be about $33 billion. It did not require that he disgorge his shares, though.

And there matters sat, until now.

The resolution announced Wednesday ends the stalemate, but it is not exactly straightforward. LVMH Moët Hennessy Louis Vuitton will sell its entire 23.2 percent stake in Hermès International to LVMH shareholders before the end of the year. Christian Dior, LVMH’s largest shareholder, with a nearly 41 percent stake, will then sell the shares it receives to its own shareholders, chief among them Arnault’s holding company, Groupe Arnault; that will still leave Arnault with about 8.5 percent of Hermès.

LVMH did not say how much money Arnault ultimately expected to make from his investments, and a spokesman did not immediately return a call seeking comment. But the gain could be substantial, assuming the shares do not fall too far as the previously locked-up stock hits the market.

Before Arnault divulged his initial stake in October 2010, shares of Hermès were trading around 176 euros; on Wednesday morning they were trading around 246 euros. On paper, the 23.2 percent stake is currently worth 5.9 billion euros ($7.8 billion).

As part of the deal, Arnault also agreed that neither LVMH, Dior nor Groupe Arnault would buy more Hermès shares for five years.

Arnault and Axel Dumas, the Hermès chief executive, said in the statement that they “both express their satisfaction that relations between the two groups, representatives of France’s savoir-faire, have now been restored.”

It is “the end of the siege,” Luca Solca, an analyst at Exane BNP Paribas, wrote in a note. The resolution has reduced the “speculative appeal” of Hermes, he noted, as it now goes back to being “a normal publicly traded company.”