LVMH Buys 14.2% of Hermes, Says Won’t Seek Control

A shopper browses a Hermes store in Paris
A shopper browses a Hermes store in Paris, Nov. 3, 2007. Photographer: Fabrice Dimier/Bloomberg News

LVMH Moet Hennessy Louis Vuitton SA, the world’s largest maker of luxury goods, said it intends to raise its stake in Hermes International SCA to 17.1 percent after buying 14.2 percent and doesn’t plan on taking control of its rival.

LVMH, which declined to say if it held Hermes shares before today, said the total cost of the purchase would be 1.45 billion euros ($2 billion). An external spokesman for Paris-based LVMH, who asked not to be identified, declined to give further details. Investors in France must disclose shareholdings of five percent and more.

“LVMH has no intention of launching a tender offer, taking control of Hermes nor seeking board representation,” LVMH said today in a statement. “The objective of LVMH is to be a long-term shareholder of Hermes. LVMH fully supports the strategy implemented by the founding family and the management team.” Calls to Hermes were not immediately returned.

Hermes shares have climbed 77 percent in Paris since the May 1 death of former Chief Executive Officer Jean-Louis Dumas on speculation the company’s founding family may be more willing to sell. His death caused no change in the Hermes family’s attachment to the maker of Birkin bags and silk scarves, the company said at the time. Most of Hermes stock is privately held.

Full-Year Forecast

Sales of luxury goods may climb this year to the highest level since 2007, led by demand in China and a rebound in the U.S., according to Bain & Co. consultants. Hermes sales may climb as much as 12 percent, the company said July 20. Hermes had a profit margin of 15.1 percent last year while LVMH reported profitability of 10.3 percent, according to Bloomberg data.

“Although LVMH claims that it is not seeking control, speculation will obviously mount that it will move towards control over time,” Matthew Jordan, head of research at Matrix in London, said today.

LVMH could raise funds by selling the rest of its drinks unit to Diageo Plc, according to Jordan. That could raise about 10.5 billion pounds ($16.5 billion) for LVMH and give Diageo, which owns 34 percent of the luxury goods-maker’s drinks unit, full ownership of brands including Moet champagne and Hennessy cognac, he said. A Diageo spokesman declined to comment.

Derivative Instruments

The 14.2 percent stake was equivalent to 15,016,000 shares, according to LVMH. LVMH, which is run by CEO Bernard Arnault, said it also holds derivative instruments over 3 million Hermes shares and intends to convert them to bring its holding to 18,071,246 shares, or 17.1 percent.

The company would have paid an average of about 80 euros a share at the stated value of 1.45 billion euros for the entire transaction, according to Bloomberg calculations. The shares closed at 176.20 euros a share in Paris trading yesterday. Hermes shares trade at 51.8 times earnings. The LVMH spokesman declined to comment on when the company would raise the holding.

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