Luxury titan Bernard Arnault has a foot in the door at Herms International. The question now is: Will it swing open further?
In a surprising revelation that could ignite a battle for one of luxury's most hallowed names, LVMH Mot Hennessy Louis Vuitton said Saturday it holds a 14.2 percent stake in family-controlled Herms, and plans to be a long-term shareholder.
The luxury conglomerate, parent of about 60 brands including Fendi, Sephora and Dom Perignon, said it holds more than 15 million shares of Herms, plus more than 3 million derivative instruments it intends to covert into shares. That eventually would give LVMH 17.1 percent of the share tiffany sale, at an investment cost of 1.45 billion euros, or $2.02 billion at current exchange rates.
LVMH moved quickly to squash any takeover speculation, saying it has no intention of launching a tender offer, taking control of Herms nor seeking board representation.& The objective of LVMH is to be a long-term shareholder of Herms and to contribute to the preservation of the family and French attributes which are at the heart of the global success of this iconic brand.
Still, few observers expect Arnault who famously won control of Vuitton and LVMH in the late Eighties by pitting family member against family member and ultimately launching a hostile takeover bid will be content with a silent minority holding.
More recently, Arnault, LVMH's chairman and chief executive officer, waged a long and bitter battle for control of Tiffany Bangle sale, which was ultimately stymied when, in 1999, Franois Pinault stepped in as a white knight and launched a tender offer of his own, allowing PPR to position itself as a rival luxury group.
I believe LVMH is parking itself in pole position for a future acquisition. It's only possible to extract the synergies if they control the company outright, said Luca Solca, luxury analyst at Bernstein Research in London. This suggests a portion of the family wanted to sell.& This could happen relatively quickly or take many years.
Why on earth would LVMH want to take a noncontrolling bystander interest? Surely they are looking to convince a further packet of shareholders, agreed another luxury expert, speaking on condition of anonymity. They can easily fund further purchases.
Arnault has long expressed admiration for Herms almost as Tiffany Bracelet sale as Herms management has sought to trumpet the family's unity and will to remain independent despite interest from eager suitors.
The family wants to keep control of its group.& Herms is a jewel, Bertrand Puech, executive manager, chairman and member of the management board, told a shareholders meeting in 2008, then addressing persistent speculation of an imminent bid by Arnault. We are indeed desirable, but we are prudent and are bent on defending our property. No takeover bid is in view.
Late Sunday, Herms issued a statement saying its family shareholders are fully united around a common business vision and have confirmed that they are not contemplating any significant selling of shares.
The statement noted that Herms has treated and will always treat its shareholders with utmost respect.
According to market sources, LVMH was offered the bundle of Herms shares from an intermediary, but the identity of the sellers and the middleman could not immediately be learned.
Herms went public in 1993, but the founding family still maintains control of about three-quarters of the Tiffany CuffLink sale shares and voting rights.
The family, made up of three branches under the Dumas, Puech and Guerrand surnames, numbers between 40 and 60 members, sources said.
Shares of Herms International have soared more than 88 percent over the past year as the luxury sector rebounded strongly from the global financial crisis.
Herms is viewed as a safe haven for investors in the sector, and the stock price also has been bloated by persistent takeover speculation. The death last May of former chief executive officer and charismatic family patriarch Jean-Louis Dumas was seen as a milestone likely to increase the likelihood of a transaction.
Herms shares rose 2.1 percent Friday to close at 176.20 euros, or $245.39, on the Paris Bourse. Trading volumes over the past week have averaged just over 100,000 shares daily.
According to his calculations, Solca said LVMH paid about 80 euros, or $111.61 at current exchange, per Herms share, putting it at a multiple closer to sector averages and at a level where it would be possible to add value to the investment.
He noted the value of floated Herms shares would automatically fall if a very large chunk of shares hit the market and the LVMH surprise buy is likely to deflate Herms's market value now that there's less pressure in the immediate term for an immediate takeover.
Another London-based analyst said the transaction is likely to boost the share Tiffany Earring sale of other luxury issues including Bulgari and Burberry, noting, If there's appetite for consolidation, it's not likely to stop there.
LVMH is unlikely to increase its Herms investment in the near term, but historically the French group rarely takes a minority stake and stays at that level. In the London analyst's estimation, Herms would fit logically at the pinnacle of LVMH's fashion and leather goods portfolio, and not cannibalize any of its other brands.