* LVMH and Hermes agree to end all litigation
* Peace deal ends four years of bitter legal warfare
* LVMH to give most of 23.2 pct Hermes stake to shareholders
* Shareholders to get one Hermes share for every 21 in LVMH
(Adds details of deal, background)
By Astrid Wendlandt
PARIS, Sept 3 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
Under the deal, LVMH - the world's No.1 luxury group,
controlled by France's wealthiest man Bernard Arnault - agreed
to relinquish most of its 23.2 percent stake in Hermes and not
acquire any shares in its smaller rival for 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 had boosted Hermes's stock, which has
been trading at a price-to-earnings ratios of about 30 times in
recent years, a 70 percent premium to the industry average.
Shares in Hermes fell nearly 10 percent to 236.5 euros in
early trading on Wednesday, wiping out 2.8 billion euros ($3.7
billion) off its market value - equivalent to around 350,000
Birkin handbags based on an average price of 8,000 euros
. By market close, they were down 3.5 percent.
"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
In 2010 LVMH - whose brands include fashion labels Christian
Dior and Louis Vuitton, Hennessy cognac and Dom Perignon
champagne - revealed it had built up a 17 percent stake in
Hermes. It made the investment through a series of equity
derivatives instead of straightforward share purchases, which
prevented it from having to declaring them.
Hermes, one of France's last major independent luxury group
still controlled by the founding family, vehemently protested at
having its arch-rival as its biggest external shareholder.
According to French magazine Challenge, the Hermes family is
Frances's fourth richest with a fortune estimated at nearly 19
billion euros, behind LVMH's Arnaults - estimated at 27 billion
euros, L'Oreal's Bettencourts and Auchan's Mulliez. They come
just ahead of Chanel's Wertheimer brothers.
Arnault had long set his sights on Hermes as it is
considered one of the luxury brands that best resists downturns,
with its products increasingly regarded as investments and
benefiting from a thriving second-hand market.
While the sales growth of rival mega-brands such as Gucci
and Louis Vuitton have ground to a halt in the past year, Hermes
has continued to enjoy an annual revenue rise of more than 10
percent, consistently higher than the industry average.
The deal marks the first time Arnault - whose LVMH group has
gobbled up more than 60 brands in the past two decades,
including sizeable ones such as Roman jeweller Bulgari -
abandons the pursuit of a prized target.
But the truce nevertheless offers a profitable solution for
LVMH, which began building up its stake in Hermes in 2007 and
2008. It stands to make a theoretical gain on its holding of
around 3 billion euros, analysts estimated.
"This clears up the situation and it is one of the few
divorces in which both the partners are winners," said Mario
Ortelli, luxury goods analyst at Bernstein.
Groupe Arnault, the family holding company of LVMH, will own
8.5 percent of Hermes after the share distribution.
Arnault is a proven master at exploiting family tensions
when trying to buy a company. When the dispute started in 2010,
industry observers thought the billionaire would seek to apply
the same technique to Hermes' more than 100 family shareholders,
divided between the Puech, Dumas and Guerrands.
A year later, most key family members except Nicolas Puech,
who owned just under 6 percent of Hermes' shareholder capital,
agreed to join a holding that controlled the company and bound
them for two decades, making a takeover virtually impossible.
"LVMH has found an elegant way out of what was a deadlock,"
JP Morgan Cazenove said of the peace deal.
LVMH shares, flat since Jan. 1, rose about 3 percent on
Wednesday. LVMH stock has underperformed the luxury goods
industry in the past year over concerns about declining cognac
sales in China and slower sales growth at its main profit
generator Louis Vuitton.
The French stock market regulator fined LVMH last year for
failing to properly disclose the stakebuilding 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 companies, they said in a joint
statement issued on Wednesday.
For 21 LVMH shares, shareholders will receive 1 Hermes
share, sources close to LVMH said. The distribution of Hermes
shares will be completed no later than Dec. 20.
(Additional reporting by Andy Callus, Pascale Denis, Alexandre
Boksenbaum-Granier and Blaise Robinson; Editing by Pravin Char)