By and  on December 1, 2010


PARIS — France’s latest corporate saga has it all: two of the nation’s richest families, acrimony and more than a soupçon of snobbism.

LVMH Moët Hennessy Louis Vuitton’s surprise investment in Hermès International has set off a war of words that holds a mirror to French society, which — for all its claims of fraternité and égalité — still harbors tensions between the aristocracy and everybody else, up to and including LVMH kingpin Bernard Arnault, the wealthiest man in the country, who, observers agree, is playing a long game aimed at eventually gaining control of Hermès.

Several observers said they were struck by the degree of surprise and indignation expressed chez Hermès when LVMH unveiled its investment on Oct. 23. Hermès executives immediately questioned the legality of LVMH’s purchase of 17.1 percent of its shares via cash-settled equity swaps.

“Just because it’s the luxury sector, are you supposed to wear gloves?” one industry source asked incredulously. “This is no gentleman’s battlefield — it’s a business like any other.”

But beyond the technicalities of the deal, the family, which prides itself on its long tradition of craftsmanship rooted in an elite equestrian heritage, has made no secret of its distaste for the man Hermès chief executive officer Patrick Thomas described as “a visitor in the garden.”

Bertrand Puech, executive chairman of Emile Hermès SARL, which represents the family shareholders, told French daily Le Figaro they did not consider the move “friendly,” despite Arnault’s assurances that he does not plan a hostile takeover and will not seek any board seats.

“The family is saying clearly and unanimously: ‘If you want to be friendly, Monsieur Arnault, then you must withdraw,’ ” Puech told the paper.

With 73.4 percent of the capital, the three Hermès family branches — Dumas, Puech and Guerrand — appear to have a lock on the 173-year-old firm, whose status as a limited partnership guarantees they keep control of all key posts. But they have made clear that Arnault’s arrival represents an assault on all the values they hold dear.

“I don’t think a house like Hermès is capable of surviving in a universe controlled by money. This house has proved again and again that poetry is not incompatible with business,” Thomas said recently at the opening of the new Hermès store on the French capital’s Left Bank.

“I sincerely hope that the power of money alone will not kill the pretty flower,” he added.

Arnault, on the other hand, has limited himself to repeating that he has no intention of seeking control of Hermès and that LVMH’s acquisition was in full compliance with French market regulations — although even the head of French market regulator AMF, Jean-Pierre Jouyet, has said the rules are not stringent enough.

Analysts have no doubt Arnault’s ultimate goal is a full takeover, noting the luxury titan is repeating a scenario that has marked all his key acquisitions since taking over LVMH in 1989. But the legal complications to an outright takeover, in this case, mean the process will be long and drawn out.

“LVMH is waiting in the wings. They don’t need to rush,” said Christophe Reille, managing partner of RLD-Partners, a firm specialized in crisis communications, whose past clients include France’s rogue trader Jérôme Kerviel. “In terms of communications, they have the easy part.”

Reille said that by sticking to a purely financial message, LVMH had effectively pushed Hermès into a corner: If its managers point to the company’s healthy financial results in order to convince family members not to sell their shares to Arnault, they are merely highlighting the reason why LVMH started snapping up capital in the first place.

And by insisting the company wants to remain independent at all costs, Thomas and Puech are shutting the door to a potential white knight.

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