So, as I predicted a few days back, the heat is very much on over the LVMH-Hermès share sale, with AMF – France’s market regulator – putting the deal under an official scanner. In fact, it’s expected that LVMH Moët Hennessy Louis Vuitton’s acquisition of a 17.1% stake (rapidly climbing up from the initial 14.2%) in Hermès International last month could actually lead to a change in French law.
The reason? Under current French law, an investor must make a declaration when it purchases more than 5% of a company’s stock, but cash-settled equity swaps — through which LVMH launched its coup over the fashion industry’s biggest trophy — are excluded from this. LVMH acquired the 17.1% stake through several intermediary companies it controls under the names Sofidiv SAS, Altair Holding LLC, Ivelford Business SA, Hannibal SA, Bratton Services Inc. and Ashbury Finance Inc.
Consequently, Christine Lagarde, France’s minister for economy, industry and employment, is deliberating a modification to the law itself. The proposed changes will include cash-settled equity swaps within the scope of the above declaration, thereby creating more transparency.
LVMH has welcomed the investigation, stating that there has been no regulatory violation along with reiterating that it has no intention of taking control of Hermès International. However, it hasn’t ruled out buying more shares. Industry insiders, though are increasingly sceptical about the future, given that LVMH chairman and chief executive officer Bernard Arnault is hardly known for being content with silent minority holdings. The famous late ’80s battle for Vuitton and LVMH, where he launched a hostile takeover bid after pitting family member against family member, is still fresh in everyone’s mind, as is the long war over Gucci in the 1990s.
In this case, a public takeover bid or offer of exchange can be filed at a threshold of 33.3%. And there is one more catch – while official documents state that 75% of the Hermès International stake remains in-house, it’s rumoured that some members of the controlling families may have sold shares. In fact, unconfirmed news reports actually peg the current family holding at approximately 55%, which is definitely cause for concern.
Watch this space for more news!