Handbags at Dawn: LVMH vs. Hermès

Bernard Arnault, the aggressive, expansionist head of mighty luxury conglomerate LVMH, sent shockwaves through the fashion and luxury world late last month, when he suddenly announced that his firm had quietly acquired 14. 2% of Hermès, the last large, family-owned independent brand in France. Immediately after LVMH’s revelation, the conglomerate of upscale brands exercised its options on another 2.9%, upping its ownership stake to 17.1%, protesting all the while that this was all a friendly move on its part. “This operation is a completely amicable one,” Arnault -- whose company is now the biggest individual Hermès shareholder -- told Le Figaro. LVMH proclaimed that they had bought the shares out of a friendly, patriotic interest in ensuring the future of Hermès as a French fashion institution, while Hermès sputtered in outrage that a truly amicable move would be to sell the stock tout de suite. “The family says it clearly and unanimously: if you want to be friendly, Mr. Arnault, you must withdraw,” replied Hermès top execs Bertrand Puech and Patrick Thomas. Hermès, long known for its expensive silk scarves, perfumes and clothing, as well as its tight grip on the company’s brand and image, immediately issued a plea for authorities to examine the legality of the stealth stock purchases. Under French law, such purchases must be reported to the Autorité des marchés financiers (AMF), the French Stock Market regulating body, once they pass a 5 percent threshold, and again at 10 percent. According to the report on its purchase it made to the AMF in October, LVMH sidestepped the threshold requirements by quietly altering the terms of cash settlement swap contracts it had bought in 2008 to move termination dates forward and take possession of the underlying shares now. The AMF, which specifically requested tighter controls over such skullduggery during last year’s regulatory overhaul of the French stock exchange -- to no avail -- is now investigating LVMH’s moves for legality. “France remains the Wild West in terms of corporate takeovers,” AMF chairman Jean-Pierre Jouyet said in a radio interview, as media outlets like Women’s Wear Daily reported that LVMH had used a variety of dodgy methods to corral the stock, including purchases made through obscure subsidiaries. But even if the AMF does find evidence of bad behaviour on LVMH’s part there is little they can actually do, say market observers. On Monday, in direct response to the LVMH/Hermès affair, French minister of the economy Christine Lagarde announced that she would amend the threshold regulations in order to ensure that similar unpleasant surprises can’t be sprung in the future.