LVMH Unsaddles Hermes Holding

Paris -- France’s richest man Bernard Arnault will relinquish most of his $7.5 billion holding in luxury-goods maker Hermes, ending a protracted battle.

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Following intervention by a French court, Arnault’s conglomerate, LVMH Moet Hennessy Louis Vuitton SA, will distribute its 23 percent stake to its shareholders and institutional investors.

This action will occur almost four years after the world’s largest luxury-goods company started building its holding without Hermes’s knowledge.

Hermes has been at loggerheads with LVMH over the stake, which was amassed via equity swaps. The move rallied descendants of founder Emile Hermes to pool their shares in a holding company to protect against a full takeover and sparked legal action as well as demands that Arnault reduce the shareholding.

The distribution of the stake, due to be completed by Dec. 20, will leave the billionaire’s family holding company, Groupe Arnault, with an 8.5 percent interest, Paris-based LVMH said.

Hermes Executive Chairman Axel Dumas, 44, and Bernard Arnault, 65, “both express their satisfaction that relations between the two groups, representatives of France’s savoir-faire, have now been restored,” LVMH said in a statement.

Shares in LVMH rose as much as 3.9 percent in Paris, the most in almost five months, while Hermes tumbled more than 11 percent. The agreement ends all litigation between Hermes and the maker of Krug champagne, Dior, Hublot watches, and exorbitantly priced canvas trunks.

Capital Gain

The resolution will boost the proportion of Hermes shares that are freely traded to more than 20 percent from about 7 percent and reduces the speculative appeal of Hermes which goes back to being a normally traded company.

LVMH shareholders would book a capital gain of about 2.84 billion euros on the stake, based on the Kelly bag maker’s closing share price yesterday, according to a person familiar with the situation.

Arnault's luxury conglomerate previously booked a 1 billion-euro gain in 2011 tied to the unwinding of the equity swaps. Sanford C. Bernstein estimates the total tax charge for LVMH distributing the shares will be 300 million euros to 400 million euros.

Hermes patriarch Bertrand Puech had repeatedly called on LVMH to cut its stake to less than 10 percent to free shares on the open market. Arnault always maintained LVMH’s investment was peaceful and that it had no intention of assuming control.

$10,000 Birkins

“If one day we’re asked to provide assistance, help or advice, or just synergy, we’re prepared to do that,” Arnault said in a February 2012 statement. “But if not, we’re a minority shareholder, relatively satisfied to see the way the share price is increasing.”

With LVMH as an investor, Hermes shares surged 49 percent yesterday amid speculation that Arnault planned to pursue a takeover of the entire company.

Hermes is widely considered the jewel of the luxury-goods industry, as its $10,000 Birkins and $690 wool scarves help it command an operating margin of 32 percent compared with LVMH’s 21 percent.

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