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PARIS — News LVMH Moët Hennessy Louis Vuitton took a 14.2 percent stake in Hermès International goosed the share prices of both French companies on Monday — along with those of a wide swath of European fashion players.
This story first appeared in the October 26, 2010 issue of WWD. Subscribe Today.
It also seemed to ratchet up the rhetoric between the family-owned maker of Birkin bags and silk scarves, and the world’s largest luxury conglomerate.
Shares in Hermès rocketed 15.1 percent to close at 202.85 euros, or $283.04 at current exchange, on the Paris Bourse, while shares in LVMH gained 2.4 percent to close at 116 euros, or $161.86. French retail-to-luxury conglomerate PPR saw its stock rise 1 percent to 117.25 euros or $163.60.
On the London Stock Exchange, shares in Burberry went up 3.2 percent. On the Swiss exchange, luxury conglomerate Compagnie Financière Richemont increased 1.2 percent. In Italy, shares in Bulgari rose 2.9 percent, Tod’s Group 2 percent and Luxottica 2.2 percent.
Analysts had predicted shares would jump, with the LVMH maneuver suggesting renewed mergers and acquisitions activity in the luxury sector.
Over the weekend, LVMH revealed its stake in family-controlled Hermès, which will rise to 17.1 percent when it converts 3 million derivative instruments into shares. LVMH said it has “no intention of launching a tender offer, taking control of Hermès nor seeking board representation.…The objective of LVMH is to be a long-term shareholder of Hermès.”
Also on Monday, LVMH and Hermès issued new press releases: the former to assure it acquired the stake within the proper regulatory framework; the latter to trumpet family unity in the face of a surprising and “unsolicited” new investor.
Hermès said family members control close to 75 percent of shares in Hermès International, suggesting LVMH acquired most of its bundle from the free float — and over a long period, given that it bought them at well under half the current trading price.
The Hermès statement noted that its supervisory board and management committee met Monday to discuss the LVMH stake, which compelled it to confirm the family’s “unanimous will to maintain long-term control of the company.…The family and the management reaffirms its pride in upholding the culture of Hermès, which is unique in the world.”
Meanwhile, LVMH said “it is fully compliant with French stock exchange regulations, notably those concerning the disclosure requirements on crossing shareholding thresholds.” The company added it would file the “appropriate notifications” within the time frames of the French markets regulator, which requires those who accumulate north of 5 percent of the share capital to declare so within several days.
Separately, Patrick Albaladejo, deputy chief executive officer at Hermès, told WWD the company had yet to receive any statement of intent from LVMH, nor any request to meet.
The surprise deal continued to get a thumbs-up from the investment world.
In a research note Monday, analyst Thomas Chauvet at Citigroup said it maintains its buy rating on LVMH, describing the impact of the Hermès investment to LVMH financially as “negligible,” although the prospect of a share buyback or special dividend “now looks unlikely.”
By contrast, the transaction is likely to renew market speculation that LVMH might dispose of its 66 percent stake in Moët Hennessy to drinks firm Diageo, which has expressed interest in a deal, in order to fund future share purchases in Hermès.
“[LVMH chairman and ceo Bernard] Arnault wants to own this company, and he’s playing a long-term game,” said one industry source. “This could take 10 years, but he’s now in place to take over. There are two scenarios that could play themselves out: One is that the family members eventually buckle and sell their shares to him because they want the cash. The other is that they get scared and unite against him or sell their shares to a third party white knight in order to block him.”