Richemont's Focus on Saving Cash Pile Damps Hermes Speculation

Cie. Financiere Richemont SA said the world’s largest jewelry maker needs its 1.88 billion-euro ($2.6 billion) cash pile to fund growth of its own brands, damping speculation the owner of Cartier jewelry may buy shares in Hermes International SCA.

“We want to grow organically and we feel we need the cash position to do that,” Richemont Chief Financial Officer Gary Saage said today. “Cash is our fortress; it will finance our investment programs. It allows us to increase dividends in good times and bad, and it allows us to have a competitive advantage to seize opportunities.”

Richemont is one of the few companies that could help Hermes fend off LVMH Moet Hennessy Louis Vuitton SA, which last month said it owned a 17.1 percent stake in the maker of silk scarves and Kelly bags, according to Luca Solca, an analyst at Sanford C. Bernstein. Saage declined to comment on Hermes today, though his comments on strategy suggest organic growth will be the focus, Solca said.

Speculation of a link between the luxury-goods companies arose when Hermes Chief Executive Officer Patrick Thomas said Nov. 9 the company has a “good relationship” with Richemont and they are “the sort of people who would work in a friendly way.” He also said the family shareholders, who together own 73 percent of the Birkin bag maker, are unified and want to keep the company independent.

‘Lots of Friends’

“Richemont has lots of friends, but it doesn’t need to get into bed with all of them,” said Jon Cox, an analyst at Kepler Capital Markets. “What they’re signalling is ‘we have strong brands, and organic growth is what we’re going to be focusing on.’” Richemont had more than twice as much cash at the end of the quarter compared to the year-earlier period.

Thomas declined to specify what options Hermes had to ward off LVMH’s advances, except to say that there were several. The founding family doesn’t need a so-called poison pill defense because of its combined stake, he also said.

Because LVMH has said it doesn’t intend to file a bid for Hermes, it can’t buy more shares in the 173-year-old company for six months, according to France’s stock market rules. An investigation by the nation’s financial regulator into how LVMH built up its stake may take a year, AMF head Jean-Pierre Jouyet has said.

LVMH has acted within the letter and the spirit of financial regulations, Vice President Pierre Gode told a French newspaper this week. LVMH began buying swap contracts underpinned by Hermes stock in early 2008 as a hedge against the financial crisis, Gode also said in the Les Echos interview on Nov. 10.

Solca said Richemont isn’t closed to future possibilities. That Saage “replied with a ‘no comment’ to the direct question leaves the door open,” the analyst said.

To contact the reporter on this story: Tom Mulier in Geneva at tmulier@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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