If you can't beat them, buy them - and preferably without anyone noticing.
In a recent announcement it was clear that Bernard Arnault, the Chairman of one of the world's largest luxury groups; LVMH, has acquired a whopping 17.1% stake in the family owned luxury leather goods and scarf company, Hermès - without anyone actually realising it. The Dumas family still owns 73% of the company, split over 72 family members from two generations, however the 17.1% now owned by Mr Arnault represents 2/3 of the float.
It might come as a surprise to the management as to how this happened, but there is certainly no doubt as to why. The management of Hermès has politely asked Mr Arnault to withdraw from their company and demands a sale of the shares. However, this is very unlikely to be happening as the LVMH Chairman, notorious for his sneaky and aggressive acquiring tactics, declares he has no interest in gaining a controlling stake in the company but nor does he look to sell his current stake.
The other high profile case that comes to mind is that of The Gucci Group, and the battle for the company, one that Mr Arnault lost to arch-rival luxury group PPR a decade ago. However, this situation is different as Hermès is not an vulnerable target, in contrary to The Gucci Group was back in 2000.
Source: www.snapme.ca
In a recent announcement it was clear that Bernard Arnault, the Chairman of one of the world's largest luxury groups; LVMH, has acquired a whopping 17.1% stake in the family owned luxury leather goods and scarf company, Hermès - without anyone actually realising it. The Dumas family still owns 73% of the company, split over 72 family members from two generations, however the 17.1% now owned by Mr Arnault represents 2/3 of the float.
Source: www.luxuo.com
The other high profile case that comes to mind is that of The Gucci Group, and the battle for the company, one that Mr Arnault lost to arch-rival luxury group PPR a decade ago. However, this situation is different as Hermès is not an vulnerable target, in contrary to The Gucci Group was back in 2000.
Source: www.huffingtonpost.com
Hermès was founded in 1837 by Thierry Hermès and went public in 1993, at €5 a share- the shares closed yesterday at €156.50. The impressive company's track record is as well known among long-term investors, as their super-exclusive $7,000 Kelly and Birkin bags are to fashionistas worldwide.
Source: uk.finance.yahoo.com
Hermès shares have dropped 15 % over the past two weeks because of the likelihood that index-trackers will sell, given the stock’s free float now of only 10 per cent and the realisation by investors that LVMH bought its stake at €81 a share, through the use of derivatives built up in 2008. However, LVMH's shares have risen in price (see below chart for further reference).
Source: uk.finance.yahoo.com
So question is, will this tactic work in favour of Mr Arnault or will Hermès just step up their game? As for now Hermès looks to be on the safe side with its limited partnership structure, furthermore, if LVMH does not back off the family owned luxury player, the introduction of poison pills is not unlikely- making the company look less attractive to the predator.
Big isn't always beautiful. when looking at the track record of both companies, Hermès has enjoyed a compound annual growth rate in net profit of 14.7 per cent against 7.6 per cent for LVMH, and a far superior stock market performance - who is really the superior player?
Quite frankly, it might not be Hermès who needs the mentor- is this a subtle way of acquiring key resources and capabilities, not only to build on the existing brand of LVMH, but rather necessary to sustain its competitive position in the luxury leather goods industry?
Source: www.juicy.mashkulture.net
Maybe just slamming Madonna across their ads simply doesn't cut it in this cut-throat industry anymore? In terms of investment, before this announcement I would have given a strong BUY on Hermès (RMS.PA), and a HOLD on LVMH (MC.PA), and despite everything going on now I am pretty certain that Hermès will come out of all of this on top, possibly stronger in share price than before the announcement. Long-term though I would SELL MC.PA, just before this "possible take over"-hype is over. And to be honest, even if Mr Arnault did succeed in acquiring Hermès, this will not happen for a very long time and by then- who knows what will be in fashion?
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