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 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.”
“It’s an intelligent move,” Luca Solca, an analyst at Sanford C. Bernstein, said today in a phone interview. “At this stage, the likelihood that LVMH will be able to get a majority stake is significantly reduced.”
Hermes, the maker of Kelly handbags that retail for about 7,000 euros ($9,375), has said that the three branches of its founding family are “fully united” in their 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’s family shareholders, who own more than 70 percent of the bagmaker, need a mechanism to allow them to sell without LVMH swooping on the stock, a person familiar with the matter said yesterday. Family members sold an average 0.5 percent of the shares annually over the last decade, said the person, who declined to be identified because the talks were private.
A family shareholder sold a stake of more than 1 percent in Hermes last week, Le Monde reported today, without identifying the seller or buyer or where it got the information. Christel Denef, a spokeswoman for Hermes, did not immediately return calls and an e-mail seeking comment.
The proposed structure may not deter LVMH from trying to buy more shares and the world’s largest luxury-goods maker may bide its time, according to a person familiar with the company’s plans, who asked not to be named because the matter is 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 make an offer for all of Hermes until at least April 23, according to French regulations.
Hermes fell 75 cents, or 0.5 percent, to 149.80 euros in Paris trading today. The stock has surged 61 percent this year, boosting the company’s market value to 15.8 billion euros. About 10 percent of Hermes shares are freely traded, exacerbating any movement in the stock.
Hermes shares will likely fall further “because the speculative pillar is completely removed from the multiple,” Solca said. Investors, who were wagering that LVMH might make a bid for company, “will be discouraged and will probably seek to liquidate their position.”
LVMH stock was little changed in Paris and has gained 55 percent this year, valuing the company at 59.5 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.
Acting in Concert?
The setting up of the proposed holding company rests on getting a “definitive waiver,” immune from any appeal, from the French stock market regulator on having to tender a public offer for Hermes, the family said today in a separate statement.
The French stock market regulator, Autorite des Marches Financiers, can’t comment on whether it has already received a request to review the company, said a spokeswoman at the agency who declined to give her name, citing agency policy. Olivier Labesse, a spokesman for LVMH, declined to comment.
A formal alignment of the relatives’ shares means they would be acting in concert under AMF rules, 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.
The family is “confident” the AMF will grant it an exemption, Le Monde reported in an interview with Bertrand Puech, chairman of Emile Hermes SARL, which represents the family shareholders.
“I would be very surprised if they put themselves in a position where they would have to tender for the remaining shares,” Solca said. The proposed structure indicates that the family is “long in shares and short in cash,” he said.
The AMF granted 31 waivers on mandatory tender offers last year, 22 of which were in similar cases, according to the regulator’s annual report for 2009. These were in instances where there was the “holding of a majority of the company’s voting rights by the applicant or by a third party, acting alone or in concert; or resale or other comparable disposal of equity securities or voting rights between companies or persons belonging to the same group,” the authority said.
Hermes shares 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. It now sells products ranging from a set of tea cups for $540 to $8,100 Jypsiere shoulder bags.