The Hermès Family’s New Plan
By Maria Cheung
Reviewed by Jennifer Williams
Hermès International’s family shareholders continue to win important victories in their battle against Moet Hennessy Louis Vuitton (“LVMH”) and other minority shareholders, after French authorities approved the Hermès family’s plan to group their shares without having to buy out minority shareholders. In January, the French market regulator, Autorité des Marchés Financiers (“A.M.F.”), ruled on the legality of the Hermès family’s plan to place more than 50 percent of the company’s shares in a new holding company. Since then, despite multiple appeals, AMF continues to rule in the Hermès family’s favor.
The family, which holds about 73 percent of Hermès’ total shares, argued that it already has de facto control of the corporation. Thus, in essence, the new plan will not amount to a change in ownership. However, under French law, if an investor acquires more than one-third of a company, the investor must make an offer for the rest of its shares. After a hearing, French regulators said in a statement that they had “granted an exemption to the requirement for a proposed public offering of shares of the company,” and added they would explain their reasoning in the near future.
In a statement to the press, the Hermès family said the new corporate change reflected “the unanimous will of the family to preserve the culture of Hermès.”
Colette Neuville, who heads an association for minority shareholders in France known as ADAM and owns one share of Hermès, said she planned to appeal. “I feared that the A.M.F. would decide this way,” she said. “Emotions took over and the law was relegated to second place.”
Ms. Neuville filed her appeal on May 19, 2011 as an emergency proceeding against the company and the members of the Hermès family, which sought to disqualify the family shareholders from exercising most of their voting rights at the Annual General Meeting of Hermès International, held on May 30, 2011. The regulatory authority dismissed Ms. Neuville’s complaint, which if approved, would have transferred control of the Hermès International General Meeting to LVMH. Afterwards, Ms. Neuville said, “I am disappointed. This decision will weigh on the rights of minority investors.”
The Hermès family shareholders, composed of the Puechs, the Guerrands and the Dumases, announced the holding company’s plan on Dec. 5, 2010 after Bernard Arnault, the head of LVMH disclosed in October 2010 that he had acquired a 17.1 percent stake in the Hermès Company. The family believes Mr. Arnault plans to conduct a hostile takeover of the company. However, Mr. Arnault has insisted that his intentions are friendly, and he is not planning to take over the company. Despite this, the Hermès family and other market specialists do not believe him.
On December 21, 2010, LVMH, which also owns luxury brands including Dior, Kenzo and Céline, announced it purchased more Hermès shares on the open market, raising its stake to more than 20 percent.
Under the new plan, the Hermès holding company will have the first right to purchase any shares the Hermès family wishes to sell. It will also provide family members with the ability to trade shares between themselves, which may deny Mr. Arnault and LVMH the opportunity to buy the shares of a family member who may want to sell.
Shareholder advocates have also argued that this plan will disadvantage minority investors. Mr. Arnault owns 20 percent of the company and the family owns 73 percent. Thus, fewer than 7 percent of Hermès shares are available on the stock market.
Only time will tell how the new plan will affect the company’s future and possibly impact the corporate market in general. Nevertheless, after the announcement of the regulator’s decision in January, it is interesting to note that Hermès shares fell 1.9 percent.