wednesday, 5 september of 2012

Hermès accuses LVMH of illicit share tactics

Hermès vs. LVMH

Hermès accuses LVMH of illicit share tactics

Hermès International SCA has filed a complaint against LVMH Moët Hennessy Louis Vuitton SA accusing its bigger rival of having used insider-trading tactics to accumulate a large stake in the company, escalating a high-profile spat between the two luxury-goods purveyors.

An official at the Paris prosecutor's office confirmed Tuesday that a complaint for insider trading and share price manipulation was filed by Hermès in July against LVMH. Hermès, the 175-year-old maker of leather bags and silk scarves, hadn't previously disclosed the complaint.

LVMH strongly rejected Hermès' accusations and reaffirmed that "the acquisition of its stake in Hermès was entirely legitimate."

France's stock market regulator, the Autorité des Marchés Financiers, or AMF, is already looking into LVMH's acquisition of its Hermès stake. The Paris prosecutor's office has requested the opinion of the French market regulator before deciding whether to open an official investigation into Hermes complaint, said an official.

With the complaint, Hermès is taking the gloves off and opening a new round in the dispute with its large uninvited shareholder. In the next legal step, prosecutors could decide to launch a preliminary investigation and depending on their findings, assign the case to an investigating magistrate or drop it.

The row between the two companies dates back to October 2010, when LVMH disclosed it had amassed as much as 17% of Hermès for a total of €1.45 billion, about $1.82 billion at current exchange rates. The luxury titan accumulated the stake using derivative instruments called equity swaps purchased from banks over a couple of years. In October 2010, it amended the equity swap contracts to deliver shares instead of cash and in one fell swoop passed various ownership thresholds that required public disclosure.

Hermès, which is controlled by the Hermès family, was informed of LVMH's move around an hour before the company went public with the disclosure, an Hermès spokeswoman said at the time.

The owner of brands including Fendi and Marc Jacobs in addition to Louis Vuitton subsequently boosted the stake to more than 20%, swallowing up the large majority of Hermès's publicly traded shares.

LVMH Chairman Bernard Arnault has said he supports Hermès's strategy and management. LVMH, the world's largest luxury-goods group, has consistently characterized its investment as "strategic and long-term" and has insisted it doesn't seek control of Hermès.

In its statement Tuesday, LVMH said that Hermès was seeking to bypass "the appropriate AMF channels without waiting for the result of the official enquiry and without determining the extent of the AMF's findings to date." It said Hermès's complaint "carries serious and unfounded accusations about market failings."

LVMH said it was awaiting the AMF inquiry's outcome "with complete peace of mind."

An Hermès spokeswoman said the complaint is "the logical follow-up given the convictions of the group," regarding the "illicit" way in which LVMH bought into the company.

The Hermès family interpreted the stake buildup as an assault on its family unity—only a few months after the death of the family's patriarch, Jean-Louis Dumas. In response, the family closed ranks in the face of the threat from the larger rival, described by Hermès chief executive Patrick Thomas as "an intruder in our garden."

Last year, family shareholders set up a holding company, which controls 50.2% of the fashion house, with the aim of warding off any takeover attempt by Mr. Arnault. In total, family members hold around 70% of the company's capital.

A further move to cement the family's grip on the company came in May, when the saddle-maker named a member of its sixth generation to become chief executive next year. Axel Dumas, a descendant of founder Thierry Hermès and currently chief operating officer, will become joint-CEO alongside Mr. Thomas at the end of May 2013 before solely assuming the top job at a later unspecified date.

(Published by WSJ - September 4, 2012)

latest top stories

subscribe |  contact us |  sponsors |  migalhas in portuguese |  migalhas latinoamérica