Saturday, July 20, 2019

Reconciliation between LVMH and Hermes after four-year handbag war


French luxury goods “Goliath” LVMH has finally relented in its bid to take over family-owned company Hermes, it was announced yesterday. The conflict centred on the tactics supposedly employed by LVMH in order to increase their stake in Hermes, including accusations of insider trading and its underhand use of derivatives to acquire 17 per cent of Hermes in October 2010.

The dispute reached bitter new heights in 2013, when a war of words between the two sides reached new levels of acrimony. Hermes CEO Patrick Thomas was upset by LVMH‘s secretive tactics, telling French newspaper Le Figaro: “If you want to seduce a beautiful woman, you don‘t start by raping her from behind.” Similarly, LVMH filed a lawsuit against Hermes for apparent “slander, blackmail and unfair competition”.

Yesterday, however, the two sides appeared to have entered into a spirit of reconciliation. Both parties claimed to be “delighted that relations between the two groups, representatives of French savoir-faire, have now been restored”. Hermes has in return agreed to drop any outstanding legal disputes it has with LVMH, according to Axel Dumas, a sixth-generation member of the original founding family of Hermes. Similarly, head of LVMH Bernard Arnault praised Hermes as a “magnificent company” and repeated earlier claims that LVMH‘s attempted takeover had been driven by “good intentions”.

Both sides will welcome the deal as a way out of the bitter dispute in which they were embroiled. Although the truce will be seen as a victory for Hermes in fighting off the French fashion giant, LVMH has done equally well. Not only will it provide Arnault with a way to save face in an increasingly ugly dispute (which saw them fined €8 million by French stock market regulator AMF last year), but LVMH will also maintain an 8.5 per cent stake in Hermes (down from 23.2 per cent) and shareholders will reap a share price gain of 130 per cent from the deal.

The two opposing factions have traditionally been viewed as “polar opposites” in the French fashion industry: the boisterous and corporate LVMH pitted against the family-owned, ‘cottage-industry‘ approach. Hermes constructed “elaborate defences” to ensure its independence, including the creation of a Hermes holding company to pool the 52 per cent share of the company owned by descendents of the original family.

Whilst LVMH was formed in 1987 (the product of a merger between Louis Vuitton and Moët Hennessey, hence LVMH) as a multinational conglomerate, and now owns global names such as Fendi and Bulgari amongst others, Hermès started as a humble saddle workshop in Paris in 1837, and has been family owned ever since. LVMH is 40 per cent owned by Christian Dior (whose majority shareholder is Bernard Arnault), but Hermes has fiercely protected its family structure since it shot to fame when Grace Kelly endorsed its crocodile handbag in the 1950s (the bag later took Kelly‘s name). These bags now fetch almost €7,000.