Legal Disputes Erupt Again between LVMH, Hèrmes

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Paris—A legal dispute has erupted again between two of the most venerable names in luxurygoods:  LVMH’s 22.3% “friendly” stake in smaller Hèrmes, which LVMH apparently accumulated through cash-equity swaps.

Descendants of the Hèrmes founding families, who own more than 70% of the shares, claimed LVMH was launching a hostile takeover of Hèrmes and created a poison pill strategy, creating holding company that gives the family 50.2% of the company’s capital and priority purchasing rights for remaining shares. The holding company structure allows the family to fend off a hostile takeover from LVMH, and received court approval to do so without making a buyout offer to minority shareholders.

Now comes reports that Hèrmes asked French prosecutors to investigate LVMH’s stake for “insider trading, collusion and price manipulation.”

Following a complaint filed by Hèrmes in July, the prosecutor’s office asked the AMF (Autorité des marchés financiers) which regulates the French bourse, to investigate the matter.

LVMH to Sue for Slander, Blackmail, Unfair Competition?

LVMH, and its chairman Bernard Arnault, have maintained that its stake in Hèrmes is “friendly” and not hostile. LVMH had used a market loophole to bypass requirements to declare share purchases when it initially bought into Hermès.

But members of the Hèrmes founding families didn’t see it that way as  LVMH revealed in 2010 that it has build up a 17% stake in Hèrmes which it gradually increased to 22.3%.

As news of Hèrmes call for an investigation into the stake spread, LVMH said Tuesday it is filing a countersuit.

“For its part, LVMH strongly reaffirms that the acquisition of its stake in Hermès was entirely legitimate and that unlike Hermès, it awaits the outcome of the AMF enquiry with complete peace of mind. LVMH has no doubt that the enquiry will determine that the Hermès allegations are false and serve no other purpose than to slander and unlawfully undermine another firm in the same industry. As a result, the LVMH Group has had no choice but to file a suit for slander, blackmail and unfair competition.”

The AMF declined to comment on the status of its probe or on the complaint filed by Hèrmes.

Some analysts wondered why Hèrmes waited so long to file a complaint against LVMH especially since the AMF had reportedly previously investigated LVMH’s use of cash-equity swaps in November 2010.