LVMH and rival Hermès have struck a deal to bring to an end one of the longest and fiercest wars in the luxury industry.
In a joint statement Wednesday, the two Paris-based groups said that they had agreed a mechanism to distribute LVMH’s 23.2 per cent share holding in Hermès to its own shareholders.
The deal will see investors in LVMH receive one Hermès share for every 21 LVMH shares they currently hold. The group’s main investors include Christian Dior, which holds 42 per cent of LVMH, and the Arnault group, which holds 5 per cent.
The operation, which the two groups said would take place before December 20, will leave Bernard Arnault’s personal holding in Hermès at around 8.5 per cent.
Shares in the family-controlled Hermès fell 9.8 per cent to €236.5 on Wednesday morning following the announcement, erasing €2.8bn off its market value.
Nevertheless, the operation will help Hermès allow one of the biggest names in the luxury industry, famed for its Birkin and Kelly leather bags, to break free from its Paris rival.
For LVMH and its shareholders, the investment reaped a share price gain of some 130 per cent. People close to the deal said that for all Hermès’ prospects in the coming years, it was unlikely that the shares would continue to gain at the same momentum.
Executives and family members of Hermès, which prides itself on its cottage-industry approach and insists that it is not a luxury group, were outraged when they discovered in October 2010 that LVMH had bought more than 17 per cent of their company.
That operation, which subsequently attracted the attention of France’s stock market regulator together with a €8m find, led to a bitter and very public stand-off between the two groups.
Tensions only increased when LVMH continued to build up its investment in Hermès in the following months to the 23.2 per cent today.
LVMH said at the time of the original investment that it had bought shares as a purely financial investment. Mr Arnault praised Hermès as a “magnificent company” for which he had only “good intentions” and no plan to take control.
But in an extraordinary public address in 2011, Patrick Thomas, then Hermès chief executive, said: “If you want to seduce a beautiful woman, you don’t start by raping her from behind.
Axel Dumas, who last year took over from Mr Thomas, vowed to take the fight against LVMH into the next generation, saying the larger group’s shareholding in Hermès was “neither desired nor desirable”. It will be “the battle of our generation”, said Mr Dumas.
Luca Solca, luxury analyst at Exane BNP Paribas, said: “The resolution of the conflict between the two parties has a direct consequence a reduction in the speculative appeal of Hermes – which goes back to being a normal publicly traded company.”
“One should expect the multiple to reduce – although more free float [shares that can be freely traded] could also mean more shareholder interest down the road.”