By REUTERS at TheNewYorkTimes
PARIS — Hermes won a major victory Thursday in its battle to torpedo a potential takeover by its larger rival LVMH after a court cleared the French luxury group’s plans to create a holding company that will lock in descendants of the founding family for 20 years. Once Hermes creates the company, which will control more than 50.2 percent of its equity, LVMH — which last year stealthily grabbed a 17 percent stake in Hermes — will face daunting barriers to win control of Hermes, maker of fashionable leather bags.
In a statement, Hermes family shareholders said the creation of the family holding company “in the next few weeks will durably strengthen the independence of the Hermes group.”
LVMH, the group behind Louis Vuitton handbags, Celine suits and Moet & Chandon champagne, declined to comment. Officially, the company has said it does not plan to make an offer for Hermes but it has been steadily raising its stake, to 22 percent from 17 percent in October, and has made no secret of the fact it wanted to buy more shares.
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Speculation that LVMH was preparing a bid has propelled Hermes’ share price to stratospheric heights, valuing it at more than 50 times the company’s expected earnings for this year. The stock, which was suspended pending Thursday’s ruling, has gained nearly 70 percent since Jan. 1 in a downward market. But the stock was expected to lose some of its “speculative appeal” as a result of the ruling. Trading was due to resume on Friday. Analysts estimate Hermes’s free floating shares to be less than 5 percent of the total.
Earlier this year, the French market watchdog A.M.F. granted Hermes an exemption from having to buy out minority investors if it created its controlling family holding. The exemption was later attacked by the French minority shareholders’ association ADAM, which lodged a complaint with the court of appeal in Paris. But the court upheld the A.M.F.’s decision.
“I am disappointed,” said Colette Neuville, chairman of ADAM. “This decision will weigh on the rights of minority investors.”
Hermes, which sees LVMH’s entry into its share capital as hostile, plans to create the family holding before the end of the year, its lawyer said, even if ADAM tries to appeal the decision. The new entity will regroup more than 100 Hermes family shareholders and associates. In addition to shares totaling 50.2 percent of equity, it will have first right of refusal on shares representing another 12.6 percent of capital. Only one third of the holding’s members will be able to sell their shares as of 2031.
“This shows the extent to which the family are not sellers, whether it is in the short-term, the medium-term or the long-term,” Olivier Diaz, Hermes’ lawyer, said.
Family investors holding about 10 percent of the company, including Nicolas Puech, Hermes’ biggest shareholder with 6 percent and the brother of Hermes chairman Bertrand Puech, did not take part in the family holding. LVMH shares, which have lost 7 percent since Jan. 1, were up 2.3 percent by midday, valuing the group at 58 billion euros. Hermes shares closed up 3.6 percent on Wednesday, valuing the luxury company at nearly €28 billion. Hermes is now worth more than twice the French bank Société Générale and nearly three times the retailer Carrefour, both of which have slumped in recent months