Arnault’s LVMH to Relinquish $7.5 Billion Hermes Stake

By Andrew Roberts 

LVMH Moet Hennessy Louis Vuitton SA (MC) will relinquish its $7.5 billion holding in Hermes International (RMS) SCA after a French court intervened to end a four-year battle over LVMH building a stake in the Birkin bag maker.
LVMH, controlled by France’s richest man Bernard Arnault, will distribute the stake to its shareholders and institutional investors, leaving Arnault’s family holding company Groupe Arnault with an 8.5 percent interest, the Paris-based company said today. LVMH currently holds about 23 percent of Hermes.
LVMH, the world’s largest luxury-goods maker, announced in October 2010 that it had built a holding in Hermes after converting the
derivative instruments it bought from three banks in 2008 into shares. The move, which caught the Hermes founding family by surprise, led to legal action and to members of the family forming a holding company to protect its ownership.
Hermes Executive Chairman Axel Dumas and Bernard Arnault “both express their satisfaction that relations between the two groups, representatives of France’s savoir-faire, have now been restored,” LVMH said in a statement.
Shares in LVMH rose as much as 3.9 percent in Paris, the most in almost five months, while Hermes tumbled nearly 11 percent. The agreement ends all litigation between Hermes and LVMH, an LVMH spokesman said by phone. LVMH’s investment in Hermes was always financial and temporary, he said.

Photographer: Simon Dawson/Bloomberg

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Seige Ended

This is “the end of the siege,” Luca Solca, an analyst at Exane BNP Paribas said via e-mail. The resolution reduces “the speculative appeal of Hermes which goes back to being a normally traded company.”
With LVMH as an investor, Hermes shares surged 49 percent before today’s trading amid speculation that Arnault planned to pursue a takeover of the entire company. Hermes is widely considered the jewel of the luxury-goods industry, as its $10,000 Birkins help it command an operating margin of 32 percent compared with LVMH’s 21 percent.
LVMH investors, including Christian Dior, will receive the shares by Dec. 20. Christian Dior, LVMH’s largest shareholder, will in turn give the stock to its own investors. LVMH, Groupe Arnault and Dior have agreed to buy no more shares in Hermes for the next five years.
Solca said he expects Hermes’s trading multiple to reduce, “although more freefloat could also mean more shareholder interest down the road.”
Hermes shares trade at 30 times this year’s estimated earnings, according to data compiled by Bloomberg. LVMH stock trades on a forward multiple of 20 times, the data shows.