Hermes can’t deal with LVMH by stiffing minorities

December 7, 2010

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — The Hermes family thinks it has been wronged. But in its fight against an unwanted shareholder, it seems intent on sacrificing the French luxury group’s remaining minority investors.

To fend off the unwanted advances of larger rival LVMH, which stealthily amassed a 17 percent stake in the Birkin bag maker, the family is planning to pool its shares in a holding company that will control more than 50 percent of the group. It has asked the French regulator to exempt it from rules that would trigger a formal bid for the whole company. But there are no compelling reasons for the regulator to agree. Minority holders shouldn’t pay for the supposed sins of Bernard Arnault, LVMH’s owner.

The family, whose members collectively own about 73 percent of the shares, has always maintained that it is in firm control of Hermes. Still, it was shocked and worried by news of Arnault’s intrusion back in October. Those family members who are actively involved in the company say they want Arnault out. Others seem to have sold some of their shares to him. Either way, the plan to consolidate their holdings seems to show the family’s control of the group was not that tight after all.

None of the family shareholders own more than 5 percent of the company, and they aren’t currently obliged to act together. As a result, the family’s argument that the new holding company doesn’t really change anything is spurious. Indeed, the plan would involve participants pledging part of their future dividends to the new vehicle, so that it has cash to buy out those family members who might want to sell.

Arnault aside, Hermes minority shareholders own no more than 10 percent of the company — their shares are worth around 1.6 billion euros at current market prices. The family has profited handsomely from its investment: the company’s shares are up 60 percent this year alone. The Hermes clan can surely spare a dime to give the silent witnesses to the brawl the option of cashing out.

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