Paris—The Autorite des Marches Financiers (AMF), the French stock market regulator, today fined LVMH 8 million euros (about $10.4 million) for failing to disclose the stock stakes it was building up in Hermès before 2010.
When LVMH finally revealed it has accumulated a 17% stake in Hermès through equity swaps, a type of market instrument that allows investors to bet on movements of a share price without actually owning the shares. Hermès protested the stake and subsequently established a holding company to thrawted any takeover attempts by LVMH as well as initiated legal proceedings against the luxury giant.
LVMH, which now has accumulated a 22.3% stake in Hermès, claims its investment was friendly, nor did it ask for a board seat.
LVMH: ‘Totally Erroneous’
The AMF began investigating whether LVMH should have revealed its stake earlier and if that stake was accomplished through loopholes in French regulations. “The company was accused of failing to inform the market that it was preparing to raise its stake in Hermès and of having breached its disclosure requirements when publishing its consolidated financial statements for 2008 and 2009,” the AMF said of its LVMH investigation.
The AMF’s enforcement committee cited the “seriousness of the successive breaches of public disclosure requirements, which consisted in concealing each stage of LVMH’s stake-building in Hermès.”
Moreover, the AMF committee said the fine was levied due to the “circumvention of the rules intended to ensure transparency, which is so vital to orderly markets, must be punished to the same extent as the disruption it causes.”
Calling the AMF’s decision “totally erroneous,” LVMH today vowed to appeal the decision to the Paris Court of Appeal, saying the AMF ruling was “weak.”
Under French market rules, investors don’t have to disclose holdings until they exceed 5% increments. “While equity swaps were exempt from such rules, that doesn’t mean investors can ignore general principles of transparency and integrity in their financial communications,” the AMF’s then Chairman Jean-Pierre Jouyet, former AMF chairman said last November.
A criminal investigation continues into the stake as do lawsuits from Hermès and LVMH.