PARIS — LVMH Moët Hennessy Louis Vuitton’s acquisition of a 17.1 percent stake in Hermès International last month could lead to a change in French law.
This story first appeared in the November 9, 2010 issue of WWD. Subscribe Today.
France’s minister for economy, industry and employment, Christine Lagarde, plans to propose a modification to the law on when an investor has to declare the acquisition of a stake in a given company, Lagarde’s spokesman told WWD late Monday.
On Oct. 23, LVMH surprised the fashion and financial worlds by revealing it had bought a 14.2 percent stake in Hermès, and that it had options for another 2.9 percent. It has since confirmed the purchase of those shares, bringing its stake to 17.1 percent.
Under French law, an investor must make a declaration when it purchases more than 5 percent of a company’s stock, but cash-settled equity swaps — the instrument via which LVMH launched its coup — are excluded from this.
“The law will have to change to include cash-settled equity swaps,” Colette Neuville, the president of ADAM, the French Association for Minority Shareholders, said Monday. “Otherwise, the floodgates are open for such practices.”
The modification could potentially go through in a matter of weeks if it has enough political will behind it, Lagarde’s spokesman said.
It would bring French law in line with that of its European neighbors, where such a declaration is required regardless of the financial instrument used to make a purchase. The discrepancy is the result of the differing transposition into national law of European directives on the subject, Neuville explained.
She also called on Hermès’ controlling stakeholders to clarify the company’s current ownership structure to send a clear signal to remaining minority shareholders. Official documents state that 75 percent of the company is controlled by its majority owners.
But according to speculation, certain members of the company’s controlling families may have sold shares, with certain news reports suggesting their total stake may now be closer to 55 percent.
“If part of the family has sold shares, it makes the likelihood of LVMH increasing its stake more probable,” Neuville said. “In such a situation, minority shareholders do not know whether to buy, sell or hold. The market cannot function with so little transparency.”
Hermès officials could not be reached for comment.