Hermes Tumbles After Saying Defense Win Locks Independence

Hermes International SCA fell the most in nine months in Paris trading as the luxury-goods maker’s deputy managing director said a court ruling represents “a decisive step” in the fight to defend against a takeover.

A Paris court yesterday rejected an appeal by minority investors who opposed a decision by the French market authority waiving rules to allow the company’s founding family to set up a holding company. The family sought the structure to protect the Birkin-bag maker after LVMH Moet Hennessy Louis Vuitton SA began building what is now a 21.4 percent stake.

“When the holding company is in place, it will become completely obvious that the claims of unity that have taken place for months and have been questioned will be impossible to challenge anymore,” Deputy Managing Director Patrick Albaladejo said in a phone interview. “This is a decisive step.”

Hermes fell as much as 20.25 euros, or 7.6 percent, to 248.05 euros in Paris, the steepest drop since Dec. 3. The stock traded down 7.2 percent as of 10 a.m.

The Autorite des Marches Financiers was right to grant the family permission to pool a 50.2 percent Hermes stake into a holding company without bidding for the rest of the business, as the regulator would normally require for a group with that large a stake joining together, the Paris appeals court said.

The court rejected the objections of minority investors represented by a shareholder advocacy group, which had sought to have AMF force the family to make an offer for all the shares.

Takeover Talk

While LVMH has said it isn’t seeking control or a board seat, its stake has prompted takeover talk. LVMH won’t be a passive shareholder in Hermes and can provide its Paris-based rival with strategic and operational help, LVMH Chairman Bernard Arnault has said.

“All the statements from the family have been very precise and decisive on this, that they don’t want to engage in discussions,” Albaladejo said, adding that he isn’t aware of any contact with Arnault.

Hermes wants LVMH to reduce its stake by more than half to free shares on the open market, according to Bertrand Puech, who heads the bag maker’s founding family. Even if LVMH doesn’t reduce the holding, Hermes will run the company as it sees fit, Puech has said.

“The creation of this company, which will take place in the coming weeks, will reinforce durably the independence of the Hermes group,” the family said in an e-mailed statement.

Bid Defense

The holding company, formed by 52 of the 53 members of the founding family with direct ownership, controls more than half the shares of Hermes and at least as many voting rights. The family sought permission for the takeover defense on the condition it wouldn’t have to bid for the rest of the company. The family won approval from the AMF by arguing that the action didn’t change the company’s controlling structure.

The regulator agreed, saying in January that the stability with which the family had managed its stake, its involvement in the running of Hermes and willingness to entrust shares to a holding company showed it was acting as a family group seeking to bring shares under one roof.

The AMF is reviewing whether LVMH violated disclosure rules by using derivatives to build its stake. LVMH won’t have to cut the Hermes stake regardless of the decision, the regulator has said.

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