By and  on January 4, 2011

PARIS — Hermès International on Thursday won an important round in its battle to fend off a potential takeover bid by LVMH Moët Hennessy Louis Vuitton.

France’s stock market regulator said it would grant a request by the family members who own Hermès to be exempted from buying out minority shareholders in their attempt to protect their capital.

The AMF said it would publish a full decision in due course following a meeting of its 16-member committee. While Hermès soberly welcomed the announcement, LVMH refrained from commenting and a campaigner for small shareholders vowed to appeal the ruling.

LVMH revealed last month that it has boosted its stake in Hermès to 20.2 percent after its initial acquisition of a 17.1 percent share of capital through cash-settled equity swaps. The AMF is separately examining whether LVMH violated market rules by buying the shares via equity derivatives.

Though LVMH chairman and chief executive officer Bernard Arnault has said he is not seeking full control of the maker of Birkin handbags and silk scarves, Hermès has vowed to protect itself from what the company considers an unwelcome suitor.

The Dumas, Puech and Guerrand families collectively own more than 70 percent of the shares in Hermès International, a limited partnership structure that guarantees they keep control of management. Still, they want to reinforce that by grouping more than 50 percent of the capital into a nonlisted holding company.

This would have normally obliged the luxury firm to launch an offer for the remaining shares, since the group will be crossing the threshold of one-third of capital or voting rights. Hermès asked the AMF for an exemption on the grounds that the family effectively controls the company already, and that the shares would merely be “reclassified.”

In a statement, the family members took note of the AMF ruling. “This decision will allow us to go ahead with the reclassification project which reflects the family’s unanimous will to preserve the culture of Hermès,” they said.

Colette Neuville, president of the French Association for Minority Shareholders (ADAM), said she would appeal the AMF decision, which she argued unfairly penalizes holders of the less than 10 percent of the company’s capital that is freely traded.

Neuville said she would be filing the motion to the Paris Court of Appeal within 10 days of the AMF publishing the full ruling.

The procedure could take months and is sure to delay the creation of the holding firm, since Hermès said last month it would not move ahead until all potential appeals have been through the courts.

“They can’t take the risk of creating a holding, because if we win in the Court of Appeal, they would then be obliged automatically to make a buyback offer,” said Neuville.

The ADAM won a similar case against Carrefour SA in 2005, when the Court of Appeal overturned an AMF ruling exempting the retailer from making a public offer for its franchisee Hyparlo.

Separately on Thursday, HSBC analysts Antoine Belge and Erwan Rambourg upgraded Hermès to “neutral” from “underweight,” advising investors who still own shares on the free float — which it estimates at less than 6 percent of the capital — to hold on to them.

The investment firm downgraded LVMH to “neutral” from “overweight,” however, characterizing the swoop on Hermès as a good use of cash, but one which will postpone cash being returned to shareholders.

HSBC remains bullish on the luxury sector overall, forecasting an increase in demand of 11 percent this year and 9 percent in 2012.

Shares in Hermès International closed down 1.9 percent at 155.05 euros, or $203.74 at current exchange, on the Paris stock exchange on Thursday, while shares in LVMH finished up 1.8 percent at 121.90 euros, or $160.18.

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