Analysis: Arnault spooks Hermes into long arms of the law
PARIS (Reuters) - Calling in the law is an unorthodox takeover defense, and it shows just how much luxury goods maker Hermes fears Bernard Arnault, France's richest man, and his reputation for exploiting internal dissent to get what he wants.
Hermes, a highly profitable maker of 10,000 euro handbags women wait months for, had already formed a laager of family shareholders to keep Arnault and his LVMH luxury goods group at bay, and on Tuesday called in the cavalry, asking prosecutors to investigate him for insider trading and share manipulation.
The family shareholders set up a majority holding group after Arnault surprised them all by disclosing in 2010 that he had built up a 17 percent stake in the 175-year-old firm, one of the last independent luxury houses.
Arnault, who spent 1.45 billion euros ($1.83 billion) on his initial purchase, has since raised his Hermes stake to 22.3 percent while insisting he does not plan to buy the company.
Hermes family shareholders - The Puechs, Guerrands and Dumas - don't appear to believe him.
"This new litigation, it's another way of showing that the group will defend itself against someone who is tenacious and not so friendly," an Hermes source said.
There is no evidence that Arnault is exploiting rivalries or dissent between Hermes family members, who own 73 percent of the company. But some family shareholders, including Nicolas Puech, the biggest, with 6 percent, did not participate in the creation of the family holding, which controls 50.2 percent of Hermes equity.
That leaves cracks that could become dangerous fissures.
Hermes, which still employs artisans in France to sew its iconic Kelly and Birkin bags, belongs to the booming "absolute" luxury sector, and would be the jewel in Arnault's crown.
Based on information given in its October 2010 statement, LVMH bought the initial Hermes stake for an average price of 80.50 euros per share. Hermes shares have tripled in value since then and are currently worth 226 euros, giving Hermes a market value of 24 billion euros against 64 billion for LVMH.
Arnault bought his initial stake in a series of cash equity swaps, rather than straightforward share purchases, so there were no declarations that the stake had hit shareholding thresholds, as is required when buyers pass certain levels. The AMF stock market watchdog began a probe in November 2010 to investigate the use of the swaps.
Hermes has not revealed if it filed the complaint with prosecutors because it had stumbled upon new information about LVMH's stealthy stakebuilding.
"The other explanation is that LVMH continues to make their life miserable, that he's acting very hostile, trying to speak directly to shareholders," one Paris-based banker said.
Arnault has a history of swallowing up top luxury brands, often after stalking them for years and swaying family members, as with Italian jeweler Bulgari last year.
The response from Hermes echoes the struggle for control of Italian fashion house Gucci, which Arnault fought in court and eventually lost to nemesis Francois Pinault, then head of retail and luxury group PPR.
A Paris-based merger and acquisition lawyer said the family saw Arnault, owner of Louis Vuitton and Fendi handbags, Hennessy cognac and the Dior fashion house, as an interloper and a threat.
Hermes head Patrick Thomas has said that LVMH, a conglomerate of various brands, is at the opposite extreme of the industry to Hermes and that the combat is "cultural".
"The Hermes family in many ways personifies a certain art of living," the lawyer said. "You don't invite yourself for dinner unless you've been invited. You don't invite yourself in the stock of the company without having requested first and having been invited. That for them is a mortal sin.
"They will never stop the fight unless and until he goes away."
Embarking on litigation, the wheels of which rarely turn briskly, has the advantage of freezing the situation and could signal concern that the AMF case is not progressing and that the watchdog is not pushing hard enough, lawyers said.
The AMF has declined to comment on the status of its probe.
One lawyer said the Hermes complaint, which could lead the Paris prosecutor to open a criminal investigation for insider trading, could also give access to details of the probe and lead to a possible ruling that the equity swaps were invalid.
($1 = 0.7915 euros)
(Additional reporting by Pascale Denis and Matthieu Protard in Paris; Writing by Dominique Vidalon; Editing by Will Waterman)
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