IE 11 is not supported. For an optimal experience visit our site on another browser.

LVMH buys stake in Hermes, prompting unified response

Controlling family shareholders of Hermes said they were not planning to sell any significant stakes after luxury peer LVMH acquired a 17 percent holding in their company.
Image: A model presents a creation by French designer Jean-Paul Gaultier as part of his Spring/Summer 2011 women's ready-to-wear collection for French fashion house Hermes in Paris
A model displays part of the spring/summer 2011 women's ready-to-wear collection for Hermes at Paris Fashion Week this month. On Sunday, Hermes responded to a share purchase from competitor LVMH by saying the company's long-term control was guaranteed by its status as a French limited partnership.PASCAL ROSSIGNOL / Reuters
/ Source: Reuters

Controlling family shareholders of Hermes said they were not planning to sell any significant stakes and remained united after luxury peer LVMH acquired a 17 percent holding in their company.

Luxury goods maker Hermes said Sunday its long-term control was guaranteed by its status as a French limited partnership — which made takeovers difficult — and pledged to treat all shareholders, as it had in the past, "with utmost respect."

"The family shareholders have confirmed that they are not contemplating any significant selling of shares," Hermes said in a statement. "They are fully united around a common business vision." Family members own more than 70 percent of Hermes.

It was not immediately clear how LVMH had acquired its Hermes holding — from family shareholders or not — and at a price significantly lower than the market.

"Though no details have been given, we suspect that, for the cost to be so low versus the current Hermes share price, LVMH must have built up a position for some time now," HSBC said in a note on Sunday.

LVMH, which owns leather goods maker Louis Vuitton, a close rival to Hermes, said it had bought shares for 80.50 euros a share on average, or at 54 percent discount to the Friday closing price of 176.20 euros.

Hermes shares have gained 89 percent since Jan. 1 and have traded above 100 euros for most of 2010.

On Saturday, LVMH said that it had built up a 14.2 percent stake in Hermes and had derivatives which allowed it to bring it up to 17.1 percent, but added it had no intention of launching a takeover bid.

LVMH said it fully supported Hermes's strategy and would not seek board representation.

"What happens next very much depends on the reaction of the key remaining equity holders," Bernstein luxury analyst Luca Solca said in a note. "It's clear LVMH is now in pole position to grow further in Hermes, if the right conditions appear. LVMH could potentially add important value to Hermes long term."

Hermes, known for its iconic Kelly leather handbags and printed silk scarves, on Sunday reminded that it had managed to grow its net profit by 10 percent on average over the past 10 years and had free cash of over 700 million euros.

Hermes's status as a limited partnership, or "societe en commandite," is a corporate structure that concentrates power in the hands of a ruling committee controlled by the family.

For example, the bylaws allow Hermes to issue new shares to existing shareholders in case of a hostile bid and also give shareholders who have owned shares for more than four years a double vote.

Limited partnerships are used by several family-founded groups in France such as media group Lagardere and tire maker Michelin to protect them from takeover.