On October 23, 2010, LVMH Moët Hennessy Louis Vuitton SA announced that they had acquired a significant stake in Hermès International, which is now at 22.3% to everyone's surprise including Hermès themselves. We now know since 2001, LVMH has slowly been acquiring shares of Hermès below the 5% threshold in which an amount over would require disclosure under French securities laws. The company also used complex derivatives and other financial instruments to amass its stake without tipping off the public, which may have been in violation of those securities laws.
As expected, Hermès was outraged and attempted to prevent LVMH from acquiring anymore shares and trying to gain a controlling interest. The families that own the majority of Hermès locked up its shares and only a small amount are traded publicly. LVMH has denied any wrongdoing claiming its investment is long-term and strategic. Indeed it is as LVMH's investment is now worth almost €2 billion since its announcement in 2010.
The French regulator, Autorité des Marchés Financiers ("AMF") presented its case on Friday stating that LVMH accumulated its shares through foreign entities and then through equity swaps. LVMH argued that the judicial procedures used were invalid and thus, calling into question the entire investigation and any outcomes. AMF dismissed LVMH's accusations without commenting on the merits of the case. Hermès claims that LVMH benefited by not disclosing it was buying their shares which would have boosted the price and made LVMH's cost of acquiring such shares higher.
The AMF is expected to issue a ruling on July 31st. If they determine that LVMH violated market regulation, the potential maximum penalty would be €10 million ($13 million) which is nothing considering LVMH posted a net profit of €3.42 billion in 2012. Paris prosecutors are also investigating to see if there were criminal wrongdoing in this case and whether LVMH engaged in insider-trading to acquire its stake as alleged by Hermès.
Read More
WSJ: LVMH and Hermès Face Off
NYTimes: LVMH-Hermès Dispute at a Boil
Reuters: AMF experts reject LVMH bid to thwart Hermes inquiry
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