PARIS (Reuters) - Shares in luxury goods makers Hermes (HRMS.PA) and LVMH (LVMH.PA) rose sharply on Monday after LVMH revealed it had built up a 17.1 percent holding in its smaller rival and said it was not planning a takeover.
The holding, announced on Saturday, raises questions about LVMH’s strategy in buying a minority stake in the family-controlled maker of printed silk scarves and how it managed to acquire the holding at a price significantly below the market.
Some analysts suggested it was possible that LVMH, which owns leather goods maker Louis Vuitton, had built up its position via options.
Hermes shares, which rose nearly as much 9 percent at the start of trading and have gained 90 percent since January 1, were up 7.7 percent at 189.8 euros and LVMH shares were up 3.7 percent at 117.5 euros by 4:12 a.m. ET.
“Given the price paid and the quality of the asset, we believe the market will view this as a good allocation of capital, despite expectations of a potential return of cash or capital (for LVMH),” Nomura said in a note on Monday.
On Saturday, LVMH said 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 it was not planning a takeover bid.
LVMH said it fully supported Hermes’s strategy and would not seek board representation.
Hermes controlling family shareholders on Sunday said they were not planning to sell any significant stakes and remained united.
LVMH, a close competitor of Hermes, has bought Hermes shares for 80.50 euros a share on average, or at 54 percent discount to the Friday closing price of 176.20 euros.
The last time Hermes shares traded at 80 euros was in February 2009.
“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.
Editing by Erica Billingham