Billionaire Arnault Lowered $15 Billion on Wealth Ranking

May 17 (Bloomberg) -- Bloomberg's Erik Schatzker, Stephanie Ruhle, Scarlet Fu and Sara Eisen report that Bernard Arnault’s net worth is $14.6 billion less than previously estimated because of the way he owns his stake in LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods company, according to data compiled by Bloomberg. They speak on Bloomberg Television's "Inside Track." (Source: Bloomberg)

Bernard Arnault’s net worth is $14.6 billion less than previously estimated because of the way he owns his stake in LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s largest luxury-goods company, according to data compiled by Bloomberg.

France’s richest man controls 46.5 percent of LVMH’s share capital, according to the 2011 annual report of the Paris-based maker of Louis Vuitton handbags and Moet & Chandon champagne. That figure includes 5.55 percent of LVMH shares held by Arnault, and a 40.9 percent stake of the company owned by publicly traded Christian Dior SA. (CDI)

The 63-year-old Arnault only owns 70.4 percent of Christian Dior, according to French regulatory filings. The remaining 29.6 percent of Dior is held by outside investors. While he controls all the voting power of Dior’s stake in LVMH, his economic interest is less than the figure reported in the LVMH annual report.

“Arnault has used Christian Dior as leverage to build up a controlling stake in LVMH,” Marc Willaume, an analyst at Raymond James in Paris who has covered LVMH for more than 20 years, said in a telephone interview May 11. “About 25 years ago, he began using Dior as a vehicle to acquire shares of LVMH, often using minority partners. That allowed him to gradually amass a controlling stake in LVMH with less personal cash.”

Arnault’s new net worth calculation represents the biggest wealth re-evaluation since March 5, when Bloomberg began tracking the fortunes of the world’s richest people daily. Adding the value of his stakes in LVMH and Christian Dior to his other assets, including shares in publicly traded supermarket chain Carrefour SA (CA), gives the mogul a $24.1 billion fortune, making him the 11th richest person on Earth, according to the Bloomberg Billionaires Index.

Controlling Owner

Previously, Arnault’s net worth had been calculated using 46.5 percent of LVMH’s market capitalization. The billionaire -- who also owns a luxury resort in the French Alps and is married to a professional concert pianist -- had ranked fifth on the index, which takes measure of the world’s wealthiest people based on market and economic changes and Bloomberg News reporting.

Molly Morse, an outside spokeswoman for LVMH, said in a telephone interview May 15 that Arnault declined to comment.

Under French securities law, the controlling owner of a company registered with Autorite des Marches Financiers, the country’s stock market regulator, is defined as the person or entity which controls 51 percent or more of the voting rights.

Because Arnault owns 70.4 percent of Christian Dior, all of the company’s shares listed in LVMH’s annual report are credited to him and his family with no footnotes breaking out his specific economic stake.

The ownership structure gives Arnault 62.4 percent of LVMH’s voting rights. The two companies have paid him at least $3.4 billion in dividends since 1992. He has never sold a significant number of shares of either company.

Dior is one of at least half a dozen companies Arnault uses to control his empire. LVMH, which generated 23.7 billion euros ($30.2 billion) in revenue last year, sells Dom Perignon champagne, Fendi handbags and Bulgari jewelry.

Property Development

The son of a civil engineer, Arnault worked in real estate before retail. After graduating from Ecole Polytechnique outside Paris in 1971, he joined his father’s construction firm, Ferret- Savinel, as a general manager. Within five years, he’d sold the company’s construction division to focus on property development.

When socialist Francois Mitterrand became France’s president in 1981, Arnault moved to the U.S., where he spent three years investing in Florida real estate from New Rochelle, New York. Lured by Mitterrand’s newfound interest in privatization, he returned to France in 1984 and made his foray into luxury goods.

The French government was seeking a buyer for Cie. Boussac Saint-Freres, a bankrupt textiles manufacturer that also owned fashion house Christian Dior. With financing from investment bank Lazard Freres & Co., Arnault bought Boussac, sold the company’s industrial mills, cut thousands of jobs and reorganized the operation into a cascade of interlinked subsidiaries.

Through asset sales -- and by selling a 49 percent stake in his holding company Arnault et Associes to various investors for 530 million francs (about $77 million) -- Arnault was able to pay down Boussac’s debt and raise cash for acquisitions.

Power Struggle

His first target: LVMH, which was created when Louis Vuitton SA merged with Moet Hennessy SA in June 1987. Using Christian Dior’s cash and corporate structure, Arnault began gradually buying up shares of the company. In 1988 -- amid a power struggle between Henry Racamier, president of Louis Vuitton, and Alain Chevalier, chairman of Moet Hennessy -- Arnault disclosed he had accumulated a 24 percent stake in LVMH with Irish beer maker Guinness.

The joint stake in LVMH was held by Jacques Rober, an investment company Arnault and Guinness created to own the shares. Rober was set up as a subsidiary of Dior; Arnault owned 60 percent of Rober through another holding company, Financiere Agache.

By September 1988, Arnault had boosted Rober’s LVMH stake to 32 percent. He raised funds for the purchase, in part, by selling more than $520 million worth of Christian Dior shares to investors. Rober’s stake gave him enough voting power to appoint his father, Jean Arnault, chairman of the luxury-goods maker’s supervisory board.

In 1994, Guinness sold its LVMH stake back to Arnault, giving Christian Dior 41 percent of LVMH, the stake it holds today.

Securing maximum voting control with minimal personal expense has come at a cost to Arnault’s net worth. Because it operates as a publicly traded holding company, Dior shares trade at a 21 percent discount to its net asset value, or $6.7 billion less than the market value of the LVMH shares it owns.

LVMH shares are up 12.4 percent year-to-date. Christian Dior shares have risen 21.7 percent in the same period.

To contact the reporter on this story: Devon Pendleton in New York at dpendleton@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net

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