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LVMH Fined 8 Million Euros by France Over Stake in Hermes

LVMH Moet Hennessy Louis Vuitton SA was fined 8 million euros ($10 million) by France’s financial markets regulator over how it built its stake in rival luxury-goods maker Hermes International SCA.

The fine, announced today by the regulator’s sanctions committee, was less than the 10 million-euro penalty that was proposed by the AMF’s college at the end of May. LVMH said it will appeal against the fine.

The level of the punishment reflected “the seriousness of the successive breaches of public disclosure requirements, which consisted in concealing each stage of LVMH’s stakebuilding in Hermes,” the regulator said in a statement on its website.

The AMF spent more than two years investigating how LVMH acquired a stake in Hermes using cash-settlement equity swaps. The market authority informed the world’s largest luxury-goods maker in October that its board would recommend that the company be fined over the matter. LVMH won’t be forced to give up its stake. The company has claimed it did nothing wrong after buying equity derivatives of Hermes shares in 2008.

The owner of Celine and Kenzo brands announced in October 2010 that it held 17.1 percent of Hermes after converting the derivative instruments it bought from three banks in 2008 into shares. LVMH, which says it isn’t seeking control of Hermes, has since added to its holding and now owns 22.6 percent.

LVMH has said it decided to convert the swaps into Hermes stock because it was concerned that settling in cash would mean millions of Hermes shares would be released onto the market, depressing the Kelly bag maker’s stock price and offering another competitor a way into its capital.

Investors normally have to disclose holdings whenever they cross thresholds of 5 percent increments. While equity swaps were exempt from such rules, that doesn’t mean investors can ignore general principles of transparency and integrity in their financial communications, the AMF’s then Chairman Jean-Pierre Jouyet told Le Journal du Dimanche in November 2010.

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