LVMH Boss and Hermès Family in Pact

Staff Writer
Columbus Monthly

c.2014 New York Times News Service

PARIS — It has been nearly four years since the fashion mogul Bernard Arnault shocked the French business world and added billions to his fortune by stealthily obtaining a large stake in Hermès, the jewel of the luxury world.

Arnault, France’s richest man, ultimately built his stake to nearly one-quarter of Hermès’s shares. And in so doing, he set off an acrimonious public battle in which the family that controls Hermès tried to force him to sell his shares.

On Wednesday, both sides claimed victory.

Arnault and Axel Dumas, the Hermès chief executive and a descendant of the founder, said in a joint statement that they had accepted a plan 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.”

Under the deal, LVMH Moët Hennessy Louis Vuitton, the luxury giant controlled by Arnault, will spin off its entire Hermès stake to LVMH shareholders. That ends the threat that the French mogul could walk away with the venerable company, although it leaves Arnault with a residual stake of 8.5 percent. The terms restrict his ability to buy additional Hermès shares for at least five years.

“Mr. Arnault understood that it had gotten too complicated to go any further,” said Virginie Blin, an analyst at AlphaValue in Paris. “It’s a smart move for him to end the war.”

Shares of Hermès, a company known for its handcrafted Birkin handbags and colorful scarves, fell 3.4 percent in Paris trading on Wednesday, as the announcement ended speculation of a takeover battle and led to expectations that much of the stake held by LVMH would soon be dumped onto the market. Shares of LVMH, the owner of luxury brands including Givenchy haute couture clothing, Moët & Chandon Champagne and TAG Heuer watches, closed up 2.9 percent.

LVMH says that it reaped a capital gain of 3.8 billion euros (about $5 billion) on its investment in Hermès. Arnault’s 8.5 percent stake is currently worth about 2.2 billion euros.

“LVMH will be very cash-rich after this,” Blin said. “The money that was tied up can now be put to better use with another acquisition or else invested into LVMH companies.”

The French fight began in October 2010 when Arnault announced that he had built his initial stake through so-called equity swaps, a type of financial derivative, which had allowed him to skirt stock exchange rules requiring major investments to be declared as they reach various ownership thresholds.

While Arnault has always maintained that his intentions toward Hermès were friendly, the family had grave doubts — noting that he was known for having built LVMH into the world’s top luxury company through some hard-fought acquisitions. They fought back, accusing him of fraud and waging a bitter battle in the news media.

Descendants of Thierry Hermès, a Paris harness maker who began the company in 1837, control about three-quarters of the shares. Joining forces, they 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 — a pittance for Arnault, whose fortune is estimated by Forbes to be about $33 billion. The regulator, though, did not require that he disgorge his shares.


And there things seemed to sit, a luxe standoff, until now. But while the resolution announced Wednesday ends the stalemate, it is by no means simple.

LVMH Moët Hennessy Louis Vuitton will hand off its entire 23.2 percent stake in Hermès International to LVMH shareholders before the end of the year. Christian Dior, the fashion company that Arnault also controls and that is LVMH’s largest shareholder, with a nearly 41 percent stake, will then pass on 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.

Arnault also agreed that LVMH, Dior and Groupe Arnault would not buy more 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 the condition of anonymity, said the family was satisfied with the deal, even though it fell short of their demand that Arnault abandon his stake altogether.

“Everyone got what they wanted,” she said, “they’re where they wanted to be. There had to be a compromise.”


Another person with direct knowledge of the situation said that Dumas and Arnault had both been particularly appreciative of the efforts of Franck Gentin, the tribunal judge who coaxed them through the conciliation.

“They’re both businessmen, and they’re both pragmatic,” this person said. “They just wanted to end it.”