LVMH Says it May Add to Hermes Stake Acquired With 2008 Equity Swaps
LVMH Moet Hennessy Louis Vuitton SA may increase its holdings in Hermes International SCA following an earlier purchase of a 17.1 percent stake through equity swaps deals made in 2008, according to a regulatory filing.
LVMH concluded the swap contracts for cash settlement with three unnamed financial institutions in 2008. It then changed the terms to take physical delivery of the underlying shares and move the termination dates forward to Oct. 22 and 25, according to a statement filed today with the France’s market regulator, Autorite des Marches Financiers, and posted on its website.
The company “foresees buying shares in Hermes International, depending on the circumstances and the market situation,” LVMH said. “LVMH supports Hermes International’s strategic vision, its growth and positioning.”
LVMH, the world’s largest luxury-goods maker, announced Oct. 23 it held a 14.2 percent stake and derivatives instruments for another 2.9 percent in Hermes, the Paris-based maker of silk scarves and Birkin bags. Yesterday, LVMH said it had exercised those options in Hermes.
LVMH has said it doesn’t intend to launch a tender offer, take control or seek board seats at Hermes, where about 75 percent of the shares are controlled by members of the founding family. A call to Hermes seeking comment after regular business hours wasn’t immediately returned.
Last Year’s Rules
Under disclosure rules implemented last year by the AMF, an investor must report any acquisition of securities that entitle it to more than 5 percent of a company’s equity. Yet LVMH’s purchase of the Hermes stake may have exposed a problem with a second set of disclosure rules for cash-settled securities where there is no expectation shares will be physically delivered, said Colette Neuville, a French shareholder activist. Those rules don’t kick in until an investor surpasses the first 5 percent threshold.
“You have a cash contract for two, three years, however long you want without declaring anything because it’s in cash, and the day you want to take the shares, you change the contract,” Neuville said of LVMH’s statement. “Each operation is legal in itself, but the combination of them is what makes for a skirting of the regulations.”
LVMH acquired 12.13 percent of the shares through its Sofidiv SAS unit, which took control of the swap contracts on Oct. 21 and 22, making the change then from cash to physical delivery of the shares. The unit also advanced the swap settlement dates to this month from as far in the future as June 2012.
‘Shocking’
“What is shocking in the case of LVMH is that ultimately, they amassed three-quarters of the float without anyone seeing a thing,” said Neuville, who worked with the AMF in tightening the disclosure rules. “It’s not worth the trouble of making a rule if you can get around it so easily.”
The AMF is reviewing the stake purchase to ensure LVMH followed the regulations, a spokeswoman for the regulator said, declining to comment further on the matter.
LVMH “scrupulously followed French market rules notably in terms of rules regarding the breaching of share thresholds,” the company said in an e-mailed statement Oct. 25. LVMH said it is acting alone and financed the purchase itself, according to today’s filing.
To contact the reporter on this story: Heather Smith in Paris at hsmith26@bloomberg.net
To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.
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