A long and bitter battle that has gripped the luxury goods industry and pitted two of France’s richest families against each other came to an unexpected end on Wednesday when LVMH Moet Hennessy Louis Vuitton SA and Hermes International agreed to a truce.
In the deal, LVMH — controlled by France’s wealthiest man, Bernard Arnault — agreed to relinquish most of its 23.2 percent stake in Hermes and not to acquire any shares in its smaller rival for five years.
It effectively buried the possibility LVMH could make a full takeover bid for the company. Such a prospect had boosted Hermes stock, which has been trading at a price-to-earnings ratio of about 30 times in recent years, a 70 percent premium to the industry average.
Photo: Reuters
Hermes stock fell nearly 10 percent to 236.50 euros per share in early trading on Wednesday, cutting 2.8 billion euros (US$3.7 billion) from its market value.
The deal, in which LVMH agreed to redistribute its stake in Hermes to its shareholders, ends four years of legal warfare between the luxury titans.
In 2010 LVMH — whose brands include fashion labels Christian Dior and Louis Vuitton, Hennessy cognac and Dom Perignon champagne — revealed it had built up a 17 percent stake in Hermes. It made the investment through a series of equity derivatives instead of straightforward share purchases, which prevented it from having to declare them.
Hermes, one of France’s last major independent luxury groups still controlled by the founding family, vehemently protested at having its archrival as its biggest external shareholder.
According to the French magazine Challenge, the Hermes family is France’s fourth-richest with a fortune estimated at nearly 19 billion euros, behind LVMH’s Arnault’s — estimated at 27 billion euros.
The deal is the first time Arnault — whose LVMH group has taken over more than 60 brands in the past two decades — abandons the pursuit of a prized target.
However, the truce offers a profitable solution for LVMH, which began building up its stake in Hermes in 2007 and 2008. Analysts estimated it stands to make a theoretical gain on its holding of about 3 billion euros.
“This clears up the situation and it is one of the few divorces in which both the partners are winners,” Bernstein luxury-goods analyst Mario Ortelli said.
Groupe Arnault, the family holding company of LVMH, is set to own 8.5 percent of Hermes after the share distribution.
LVMH shares, flat since Jan. 1, rose about 3 percent on Wednesday. LVMH stock has underperformed the luxury goods industry in the past year over concerns about declining cognac sales in China and slower sales growth at its main profit generator, Louis Vuitton.
The agreement signed on Tuesday night ended all legal proceedings between the two companies, they said in a joint statement issued on Wednesday.
For 21 LVMH shares, shareholders will receive 1 Hermes share, sources close to LVMH said. The distribution of Hermes shares is to be completed no later than Dec. 20.
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