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French handbag harmony

PEACE PREVAILS

Paris, Sept. 3 (Reuters): A long and bitter battle that has gripped the luxury goods industry and pitted two of France’s richest families against each other came to an unexpected end on Wednesday when LVMH and Hermes agreed to a truce.

Under the deal, LVMH — the world’s No. 1 luxury group, controlled by billionaire Bernard Arnault — agreed to relinquish most of its 23.2 per cent stake in Hermes and not to acquire any shares in its smaller rival for the next five years.

It effectively buried the possibility LVMH could make a full takeover bid for the 177-year-old maker of Birkin and Kelly handbags. Such a prospect has boosted Hermes’s stock, which has been trading at a price-to-earnings ratios of about 30 times in recent years, a 70 per cent premium to the industry average.

Shares in Hermes fell nearly 10 per cent to 236.5 euros in early trading on Wednesday, wiping out 2.8 billion euros ($3.7 billion) off its market value — equal to around 350,000 Birkin handbags based on an average price of 8,000 euros.

“The speculative premium has disappeared,” said Barclays France director Franklin Pichard.

The deal, under which LVMH agreed to redistribute its stake in Hermes to its shareholders, ends four years of legal warfare between the luxury titans, dubbed the “handbag war” by the press.

In 2010, LVMH revealed it had built up a 17 per cent stake in its rival through a series of equity derivatives instead of straightforward share purchases, which prevented it from having to declare them.

Hermes — one of France’s last major independent luxury group, still controlled by its founding Hermes family — vehemently protested at having its arch-rival as its biggest external shareholder.

The French stock market regulator AMF fined LVMH last year for failing to properly disclose the stake-building and Hermes launched legal action against LVMH on allegations of insider trading and stock price manipulation.

LVMH fought back with proceedings against Hermes for libel.

The agreement signed on Tuesday night ended all legal proceedings between the two groups, they said in a joint statement issued on Wednesday.

 
 
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