Hermès-LVMH: peace is a matter of shares distribution

Thursday, 04 September 2014
ANALYSIS_ After four years of bicker and complex financial disputes and artifices, Hermès and LVMH have called it a day regarding the fight over the luxury conglomerate building a reference stake in the Birkin handbags maker. LVMH and Hermès have announced they called it a truce over a shares distribution plan that will put an end to their dispute over LVMH’s 23.2 percent stake in Hermès, worth some 6.4 billion euros. The president of the commercial court of Paris, Franck Gentin, proposed a conciliation between the two luxury groups, which has been signed by both parties.

Under the deal, LVMH will distribute all its shares in 177-year-old family-controlled Hermès to its shareholders, and LVMH’s largest shareholder, Christian Dior, will in turn distribute the Hermès shares it gets to its own shareholders.

Thus, Bernard Arnault from LVMH, will relinquish most of his shareholding in luxury-goods maker Hermès International (RMS) SCA. In turn, Hermès will withdraw the legal complaints it had filed against its bigger rival.

Besides, LVMH, Dior and Groupe Arnault - the family holding of LVMH which will have 8.5 percent of Hermès after the distribution - have also undertaken not to acquire any shares in Hermès for the next five years.

It is noteworthy that Hermès has objected to the holding ever since it learnt of it in 2010, and LVMH was sanctioned by the market regulator for failing to properly disclose their stake-building.

After a 4-year battle…Who wins?

In the words of Luca Solca, an analyst at Exane BNP Paribas, the announcement marks “the end of the siege”. "This clears up the situation and it is one of the few divorces in which both the partners are winners," added Mario Ortelli, luxury goods analyst at Bernstein.

LVMH advanced that the distribution of the stake, due to be completed by Dec. 20, will leave the family holding company Groupe Arnault with an 8.5 percent stake.

For 21 LVMH shares, shareholders will receive 1 Hermès share, sources close to LVMH and quoted by British media said.

“Mr. Arnault understood that it had gotten too complicated to go any further,” said Virginie Blin, an analyst at AlphaValue in Paris. “It’s a smart move for him to end the war.” “LVMH will be very cash-rich after this,” added Blin, pointing out that “The money that was tied up can now be put to better use with another acquisition or else invested into LVMH companies.”

Hermès Executive Chairman Axel Dumas, 44, and Bernard Arnault, 65, “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. "LVMH has found an elegant way out of what was a deadlock," highlighted JP Morgan analysts.

On the wake on the news, shares in LVMH gained 3.9 percent in Paris, the most in almost 5 months, while Hermès lost more than 11 percent.

Shares in Hermès fell nearly 10 percent to 236.5 euros in early trading on Wednesday, wiping out 2.8 billion euros off its market value, reported the ‘Daily Mail’. "The speculative premium has disappeared," said Barclays France director Franklin Pichard.

Angela González Rodríguez

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