Richemont’s governance armour is hard to pierce

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4 minute read

The logo of the luxury goods company Richemont is pictured at its headquarters in Bellevue near Geneva, Switzerland, June 2, 2022. REUTERS/Denis Balibouse

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MILAN, Aug 12 (Reuters Breakingviews) - Bluebell Capital’s campaign for corporate governance changes at Richemont (CFR.S) looks like an uphill struggle. Under pressure from the activist investor, the $63 billion Cartier owner will allow listed A shareholders to designate a board representative at a September shareholder meeting. Optically this looks like an improvement. Yet Chairman Johann Rupert’s vast voting power means he may still reject outsiders.

Bluebell’s push for broader shareholder representation at Richemont has merit. The fund argues, among other requests, that ordinary investors should be able to directly appoint a board member to get a bigger voice. Rupert, who owns unlisted B shares that carry 50% of the votes even though they count for just 9.1% of issued capital, can pick directors and decide strategy.

Richemont’s own by-laws and the Swiss civil code say holders of ordinary A shares are entitled to a representative. But this appears to have been neglected by shareholders. That will change in September, when the company will allow A shareholders to pick their own board member. The choice is between Bluebell candidate Francesco Trapani, a former boss of jeweller Bulgari, and Richemont-backed Wendy Luhabe, a current board member. Richemont has recommended shareholders vote against Trapani.

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However, Richemont’s notice to the annual general meeting suggests the A shareholder representative will still need to be approved by a full shareholder vote. That means Rupert’s unlisted B shares could still reject Trapani, provided there are valid reasons to do so. Rupert says there is no need to change Richemont’s board as its discussions always take into account the interest of all shareholders.

Richemont could do with a fresh voice. Its shares have offered total returns of 53% in five years, against more than 200% at rivals Hermès International (HRMS.PA) and LVMH (LVMH.PA), but have outperformed a 25% contraction by watchmaker Swatch (UHR.S), Refinitiv data shows. Forays into online distributor YNAP have yet to add significant value. The flagship jewellery division, however, generated 3.8 billion euros of EBIT last year, above the group’s total, and reported a 34% operating margin, not far from Hermès’s 39%. Focusing squarely on that and on the profitable watches business could narrow a valuation gap with the $144 billion rival.

Rupert’s voting power means Bluebell’s proposed governance changes risk floundering, although the fund may seek to come up with some fresh legal arguments. It would be a pity if the outcome means contrarian business ideas are neglected.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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CONTEXT NEWS

Activist investor Bluebell Capital Partners proposed on July 14 changes to the governance of Cartier owner Compagnie Financiere Richemont at an upcoming shareholder meeting on Sept. 7.

The $63 billion luxury goods conglomerate has had, since its inception, a dual class share structure. Chairman Johann Rupert owns all non-listed B shares, which represent 9.1% of the group’s issued capital but command 50% of the voting rights. Richemont’s A shares, representing 90.9% of the issued capital, are listed on the Swiss stock market.

London-based Bluebell, led by co-founder Giuseppe Bivona and with 250 million euros in assets, has proposed the election of former Bulgari chief executive and former LVMH board member Francesco Trapani to the Richemont board as representative of holders of listed A shares.

Richemont’s articles of incorporation give holders of its A shares the right to appoint a designated representative to the board. Up until now, A shareholders have not formally exercised that right.

The luxury group said on Aug. 8 that A shareholders could select their own board representative at the upcoming annual general meeting on Sept. 7. The company recommended that shareholders vote against Trapani, and instead proposed current board member Wendy Luhabe.

According to Richemont’s notice to the AGM, candidates to the board will also need to be approved on an individual basis in a separate vote at the AGM.

Bluebell has also proposed to raise to three the number of directors representing A shares sitting on the board. It has also requested the board to be equally split between representatives of A shares and those representing B shares.

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Editing by Neil Unmack and Oliver Taslic

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