PARIS — Buying all remaining shares of Hermès International on the free float — and those of family members opting not to pool theirs into a protective holding — would cost LVMH Moët Hennessy Louis Vuitton an estimated 3.8 billion euros, or $4.95 billion at current exchange.

This story first appeared in the January 14, 2011 issue of WWD. Subscribe Today.

While financially possible for the luxury giant, given its strong cash flow and low gearing, this “aggressive approach” could be fraught with complications.

That’s a hypothesis floated by Bernstein Research analyst Luca Solca in a report published Thursday.

According to Solca, driving Hermès out of the stock market would constrain family members in the holding from turning their shares into cash, potentially making it more likely for them to accept an outright takeover or a merger with LVMH.

However, if LVMH’s stake-building took it over 33 percent, forcing it to launch a full bid, family members are unlikely to accept, leaving “LVMH with a higher share and yet no control.”

LVMH acquired a 17.1 percent share of the luxury firm’s capital through cash-settled equity swaps last October, a stake it boosted to 20.2 percent last month.

The Bernstein report comes in the wake of last week’s decision by the AMF, France’s stock market authority, allowing Hermès to reclassify the share capital into a family holding without having to buy out minority shareholders, girding its defenses against a possible takeover. The report detailed that not all family members plan to participate in the holding.

Colette Neuville, president of the French Association for Minority Shareholders (ADAM), plans to appeal the AMF decision on the grounds that it penalizes holders of the company’s capital that is freely traded. The deadline to appeal is Monday. LVMH has yet to comment on the AMF decision — or indicate if it intends to appeal.

The AMF is separately examining whether LVMH violated market rules by buying the shares via equity derivatives.

Meanwhile, industry sources suggested Hermès could face internal hurdles in creating its shareholder pact in the “cooling-off period” between now — when anti-LVMH sentiment among the family is still running high — and the resolution of the AMF appeal.

Hermès has indicated it won’t construct its family holding until the appeal is concluded. That means participating members will have time to reflect on the ramifications of locking up much of their wealth for 20 years.

One financial source noted that even if Hermès increases its dividend, moneys in the family holding could quickly get eaten up by liquidity needs, succession rights and taxes.

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