By  on November 3, 2010

PARIS — The French market regulator (AMF) is examining LVMH Moët Hennessy Louis Vuitton’s stealth purchase of a 17.1 percent share in Hermès International to decide whether market rules were respected, the head of the authority said in a newspaper interview on Tuesday. AMF president Jean-Pierre Jouyet told financial daily Les Echos, which is owned by LVMH, that the market authority had merely been notified by LVMH that it had acquired the shares via equity swaps, but that it had yet to approve the operation.

“If, given the elements in his possession, the secretary general of the AMF considers that there are grounds to launch an inquiry, then this will be ordered,” he was quoted as saying by the newspaper.

In France, companies are required to declare stock purchases when they surpass 5 percent of the share capital.

LVMH took analysts by surprise when it revealed on Oct. 23 that it crossed that threshold with transactions to purchase more than 15 million shares, representing 14.2 percent of Hermès — one of the luxury world’s greatest trophy brands.

Luxury mogul Bernard Arnault’s group said it achieved the Hermès stake through several cash-settle equity swaps, in which an investor essentially bets on the future value of a stock without actually owning the underlying shares.

Jouyet said the AMF had published a report in 2008 in which it recommended that cash-settle equity swaps be considered equivalent to shares in calculating the threshold for declaring stock purchases to the market.

“This proposition was not retained in the law. It is highly regrettable,” he said.

A spokeswoman for the AMF said that the regulator does not make public any of its investigations in order to avoid prejudicing its inquiries.

Therefore, it will be impossible to verify whether the regulator has ordered a probe into the LVMH purchase until such time as the matter is brought before a sanctions committee, in the event that any irregularities have been found, the spokeswoman explained.

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