Hermes International SCA’s family shareholders sought to bolster their defense against a possible takeover by LVMH Moet Hennessy Louis Vuitton SA by setting up a holding company for more than 50 percent of the share capital.
The proposed holding company will have first right of refusal on the remaining shares held directly by the family, Hermes said in an e-mailed statement late yesterday. The family “have reaffirmed their unity and their confidence in the solidity of their current control of Hermes.” The commitment to create the majority holding is “irrevocable.”
Hermes, the maker of Kelly handbags that retail for about 7,000 euros ($9,375), has said that the family is “fully united” in its desire to retain control of the 173-year-old company after LVMH announced in October it had acquired a 17.1 percent stake via equity swaps and would consider buying more.
Hermes family members, who own 73.4 percent of the company, need a mechanism to allow shareholders to sell without LVMH swooping on the stock, said a person familiar with the matter. Family members sold an average 0.5 percent of the share capital annually over the last decade, said the person, who declined to be identified because the talks were private.
Hermes hired BNP Paribas SA and Bank of America Corp. as advisers last month to help fend off a possible LVMH takeover bid. LVMH, which has said it doesn’t intend to seek a board seat or control, can’t bid for all of Hermes until at least April 23, according to French regulations.
Hermes dropped as much as 7.25 euros, or 4.8 percent, to 143.30 euros and traded at 146.65 euros in Paris trading at 9:15 a.m. The stock has surged 57 percent this year, boosting the company’s market value to 15.4 billion euros. Fewer than 10 percent of Hermes shares are now freely traded, exacerbating any movement in the stock.
LVMH stock was little changed in Paris and has gained 55 percent this year, valuing the company at 59.6 billion euros. Chief Executive Officer Bernard Arnault has built his company into the world’s largest luxury-goods company by snapping up brands from Donna Karan International Inc. to Glenmorangie Plc.
He bought a 5 percent stake in Gucci Group in 1999, saying LVMH didn’t intend to make a full bid, then increased the holding to 34 percent within a month. Arnault, ranked seventh on the Forbes magazine list of the world’s richest people, eventually lost a battle for Gucci to French rival PPR SA.
The proposed holding company is subject to approval from the French stock market regulator, Hermes said yesterday. Olivier Labesse, a spokesman for LVMH, declined to comment on the holding company yesterday.
Acting in Concert?
A formal alignment of the relatives’ shares means they would be acting in concert under the rules of French stock market regulator Autorite des Marches Financiers, obliging them to make a bid for the rest of the stock, Colette Neuville, president of minority shareholder group Adam said on Dec. 3, before the holding company was announced.
Lawyers advising Hermes on the possible structures available for the family to barricade their stake disputed Neuville’s reading of the rules, she said. The lawyers took the view that Hermes’s SCA status means the family already controls the company and that any new structure to emerge from the Dec. 3 meeting would warrant a simple “reclassification” to the AMF of their existing position, she said.
Shares in the company doubled between the May 1 death of former Chief Executive Officer Jean-Louis Dumas and the announcement of the LVMH stake in October on speculation members of the founding family may be more willing to sell.
Hermes, whose Birkin bags have been carried by Lady GaGa and Martha Stewart, was founded as a harness-maker in Paris in 1837, expanding into saddles in 1880 when it moved to 24 Rue du Faubourg Saint-Honore, then a busy intersection. It now sells products ranging from a set of tea cups for $540 to $8,100 Jypsiere shoulder bags.
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