The Hermes family has decided that it wants the shares of its company purchased by LVMH chairman Bernard Arnault back. But thanks to the sneaky method Arnault used to get those shares, getting them back will be a gargantuan task, if not an impossible one.
Last week Arnault made the announcement that his company had bought some 15 million shares of Hermes, which produces iconic handbags like the Birkin and the Kelly. That amounted to just over 14 percent of the company, and by this week the stake had been converted to over 17 percent. At the time, LVMH said that it did not wish to take over the brand, but that it had “no intention of launching a tender offer, taking control of Hermes, nor seeking board representation.”
But nice words haven’t assuaged the family’s doubts about his intentions. WWD reports that Arnault got the estimated $4 billion stake without anyone in the Hermes family knowing about it. That’s because he purchased them via derivatives, essentially buying the rights to purchase shares of the company once the shares reached a certain value. According to New York Times financial writer Andrew Ross Sorkin, that Arnault took the derivatives route “so that he would not have to declare ownership until he was ready to pounce.” Sneaky.
France’s financial regulatory board doesn’t have to be notified that an individual or a company owns a portion of another company unless that portion is greater than five percent. If you have to declare that you own five percent of something, hey — you might as well declare that you own 17 percent of it if you can, right?
While stealthy, the method Arnault used is entirely legal, and it’s rare to hear majority shareholders complain about it. That’s because stealth accumulation generally increases stock prices. And everyone is happy when stock prices go up.
So when is it bad? When the company being acquired doesn’t want (or need) another entity to take control. The crux here is that even though all of this maneuvering is completely legal, it can also be entirely unfair. There’s no way Hermes could have protected itself from these purchases.
And that’s why members of the Hermes family have come out and said publicly that that they do not consider Arnault’s involvement in their company friendly or innocent. Even though Arnault is a minority shareholder, his stake is still big enough that down the line he could quite easily ask for a position on the Hermes board — even despite saying that that’s not what he wants.
“The family is saying clearly and unanimously: ‘If you want to be friendly, Monsieur Arnault, then you must withdraw’,” Bertrand Puech, executive chairman of Emile Hermès SARL, which represents the family shareholders, said in Le Figaro.
But it will take significantly more than a harshly worded public letter to wrest the stake from Arnault’s hands. There’s talk of an investigation into the acquisition, but we’re going to hazard the guess that LVMH and Hermes are going to be linked financially for a long time coming.
LVMH Buys A $4 Billion Chunk Of Hermès [Styleite]
Hermès Executives Tell Arnault To Back Off [WWD]
Regulator Reportedly Eyeing LVMH Purchases [WWD]
Big Investors Appear Out of Thin Air [The New York Times]