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Hermès Chief Lashes Out at Bernard Arnault

Patrick Thomas calls for LVMH to reduce its stake as 2010 profits jump 46 percent.

The Hermès men’s store is located directly across the street from the women’s flagship.

The Hermès men’s store is located directly across the street from the women’s flagship.

George Chinsee

PARIS — Hermès and LVMH aren’t about to bury the hatchet.


Hermès International chief executive officer Patrick Thomas launched a violent verbal attack Friday against luxury titan Bernard Arnault, who surprised markets by revealing last October that he had acquired a stake in Hermès, which has since risen to 20.2 percent.

“If you want to seduce a beautiful woman, you don’t start by raping her from behind,” Thomas said, drawing gasps from analysts and journalists gathered at Hermès headquarters in Paris, following the company’s announcement of record profitability in 2010.

Hermès reported that net income rose 46 percent to 421.7 million euros, or $559.8 million, in 2010, versus 288.8 million euros, or $402.7 million, in 2009. All dollar figures are calculated at average exchange for the period in question.

The current operating margin widened by 3.6 percentage points to 27.8 percent in 2010, its highest level since Hermès went public in 1993. This beat the company’s most recent revised forecast of a 3 percent bump.

Buoyed by what analysts saluted as an impressive performance, Thomas reiterated calls by other Hermès executives for Arnault, chairman and ceo of LVMH Moët Hennessy Louis Vuitton, to reduce his stake, saying it would be the best proof of his avowed “peaceful” intentions toward Hermès.

Thomas added that the maker of Birkin bags and silk scarves had no interest in possible synergies, after Arnault last month extended an olive branch by suggesting the two luxury players could collaborate in a way “that is constructive and beneficial to the company.” Analysts have suggested Hermès could benefit from LVMH’s clout in buying advertising space and rental property, for example.

“Today, there is no interaction between LVMH and us. We don’t plan to have any,” he said.

Hermès family officials have made no secret of their distaste for Arnault, but until now they had stuck to pastoral metaphors to describe what they view as the potential ravaging of their corporate culture. Peppered with questions about the feud, Thomas suggested Hermès could delist if it considered that share liquidity was no longer sufficient.

“I will not hide from you that, personally, I think delisting would make sense for Hermès,” he said, adding that the option had not been discussed internally. “Rest assured, this is not an announcement. I am simply thinking out loud.”

Thomas said the decision would depend on the fate of the company’s free float, which currently amounts to less than 10 percent, since the three family branches — Dumas, Puech and Guerrand — collectively own more than 70 percent of the capital in a limited partnership structure that guarantees they keep control of management.

“If the free float functions and gives a value that reflects the real value of the company, we could leave things as they are. If it no longer has any meaning, then we will see,” he explained.

Asked whether Hermès was ready to commit the necessary funds to buy out other shareholders, Thomas said: “Why not? It’s worth the investment.” However, he did not detail how the luxury firm would raise the cash.

Hermès reported its cash pile, excluding long-term investments, rose to 829 million euros, or $1.1 billion, in 2010, from 508 million euros, or $708.5 million, the previous year.

According to its latest declaration to French stock market authority AMF, LVMH owns 21,338,675 shares in Hermès. This values its stake at 3.2 billion euros, or $4.34 billion, based on Friday’s closing share price of 152 euros, or $206, up 0.43 percent from the previous session.

Thomas said he believed LVMH was quietly accruing more shares, though he added that he had no evidence to back this up.

“What makes us say that they probably have more is that they are not declaring more,” he said ironically, referring to LVMH’s failure to declare its crossing of several thresholds before unveiling its initial 17.1 percent stake last fall.

LVMH later explained it had bought the shares through cash-settled equity swaps, a move that is being investigated by the AMF to determine whether it violated market rules.

Thomas said despite press reports to the contrary, the sixth-generation heirs of Thierry Hermès, who founded the company in 1837, were united in their determination to fend off a potential takeover.

In December, the heirs unveiled a plan to form a nonlisted holding company grouping more than 50 percent of the capital. The move has been approved by the AMF but is being appealed by minority shareholders.

Thomas said Hermès was awaiting the outcome of the appeal “with great serenity,” adding that press reports of disagreements among family members were “claptrap.”

“The family today is extremely united. That does not mean the family always agrees on everything,” he said, adding that members of the extended clan included a creator of Japanese manga, a painter and a DJ. Thomas is the first nonfamily member to head Hermès.

Looking ahead to 2011, the ceo said Hermès planned to open 13 stores, mainly in high-growth regions like Asia, which will gain seven new units, including a second Indian store in Mumbai. The group will renovate or expand an additional 14 stores in more mature markets.

Thomas reiterated the company’s goal of average annual sales growth of 8 to 10 percent at constant exchange rates, below the 18.9 percent achieved last year, cautioning that 2010 would be hard to beat.

“You mustn’t believe everything you read about the luxury sector having emerged from the crisis,” he said. “It is obvious that the international economic climate is increasingly unstable right now, and that is why I have been cautious and that I remain cautious this year.”

Hermès reported that operating income rose 44.3 percent to 668.2 million euros, or $887.1 million, in 2010.

The company will propose a dividend payout of 1.50 euros, or $2.08, at its next meeting of shareholders in May. The interim dividend of 1 euro, or $1.36, paid on Feb. 10 will be deducted from that sum.