PARIS- The most striking war of French fashion ends with an armistice. LVMH and Hermès sign an agreement under which the luxury giant led by Bernard Arnault renounces the ascent of Hermès of which he had purchased up to 23.2% of the capital, equal to a value of 6.4 billion. According to the mediation of the Paris commercial court, signed by the parties, LVMH will distribute the Hermès shares in its portfolio to its shareholders, reducing its holding in Hermès by up to 8.5%. The Arnault group and the subsidiaries through Christian Dior also undertake not to buy Hermès shares at least until 2019.
This closes 5 processes after the “mini-climb” started in October 2010 without the knowledge of Hermès, who has always opposed this participation. Although LVMH has always denied any hostility in its investments, it had been sanctioned by the Autorité des Marchés Financiers, the French Consob, with a record fine of 8 million not to have disclosed the progressive purchases. The old saddlery of Faubourg-Saint-Honoré, founded in 1837 by Thierry Hermès and today led by 44-year-old Axel Dumas, representative of the sixth generation, opposed Arnault’s entry into the capital in all these years. In 2011 the holding company “H51” was created, a family safe in which 51% of Hermès shares are tied up for 20 years.
The financial battle of Hermès against the French fashion tycoon used to shop for brands and companies also in Italy has enthralled many industry experts, also due to the forces on the field: Hermès has a worldwide reputation but a turnover of 3.75 billion against 29.15 billion Lvmh. In the rivalry different entrepreneurial styles also clash. After the first raid on the stock exchange, the then director of Hermès, Patrick Thomas, treated Arnault as an upstart. “We are not luxury, but quality”. Arnault, 63, the richest man in France, has decided to lay down his arms, with some advantage. In addition to saving all legal fees for open litigation, it will have a substantial tax discount of 2.8 billion earned with the purchase of Hermès shares: a sum that will not be taxed as a capital gain but as a dividend. Beginning in December, LVMH will distribute the shares it holds in Hermès to its shareholders (including the Italians Della Valle and the Bulgari brothers). The Paris Stock Exchange rewarded Lvmh, which posted a rise of over 4%. Hermès has left more than 7% on the ground with the lack of the speculative appeal, even if the Faubourg-Saint-Honoré maison set aside a cash flow of 1 billion, now probably distributed to shareholders.
LVMH, Dumas and Arnault say they are satisfied for having pacified “the relations between the two representative groups of French savoir faire”. Hermès is a unique family company, with an operating margin of 32% (compared to 21% of LVMH) and some symbolic products, such as the Birkin bag which sells for over 10 thousand euros. “At Hermès we do not say it is expensive, but it is expensive,” says Dumas to summarize a very French concept of elegance, little exhibited and gaudy. For Arnault it may not be the final chapter. Even when it reaches 8.5%, the tycoon will remain the Maison’s first single shareholder.