LVMH and Hermes-Part 3- A self made billionaire takes on an aristocracy

The saga continues and will continue for quite some time. How dare a nouveau riche try to gain control over a family owned, operated and managed 173 year old brand. Despite this modest summation the drama that is unfolding in France is an interesting one. One which has questioned current French law and one that could have a great impact in the landscape of French luxury which has a rich history within the apparel industry.

Bernard Arnault, the wealthiest man in France, purchased a 17.1% stake in Hermes through cash-settled equity swaps back on October 23, 2010. This began the saga which will continue for a very long time but who will be victorious? History says Arnault has a pretty good chance given his patience and strong business acumen. But it is also history that leads the family of Hermes and the public to question Arnault's plans of a hostile takeover, a takeover similar to his takeover of Louis Vuitton. Many in the financial world see this saga as absurd given that it is just business and buyouts and takeovers happen all of the time. But to the Hermes family this is an audacious move made against them.

As it stands Hermes is controlled by the 3 family branches descended from the founder, Theirry Hermes, the Dumas, the Puech and the Guerrand which own a combined 73.4% stake in the company and have the only decision making control. However, as time passes and the fourth generation gets older, eventually subsequent generations will gain their shares and control in the family business. The fourth generation had only 3 descendants while the sixth generation will have 20, greatly diluting the shares of the company among several individuals. This is what Arnault and LVMH is waiting for, as the quantity of shares get smaller and the number of inheriting family members grows, the younger family members may be open to selling their shares which opens the gate for LVMH to increase their stock ownership in Hermes.

Will an Arnault and LVMH control change Hermes? Speculation suggests that given the history of Arnault's takeovers he is very concerned with protecting the integrity and history of the brands he acquires which means there could be very little to no impact on the DNA of Hermes and Hermes in turn would gain all of the resources LVMH has to offer which could expand the brand to areas of the world it is not yet located. That being said, it all depends on how LVMH wishes to expand Hermes. An expansion could result in a decreased average price in order to increase market share throughout the world which would directly impact the brand identity and DNA. But all of this is speculation, as the saga continues we will find out more. At this point in time the consumer does not appear to be phased by this drama but the backlash and comments made by the Hermes family certainly is entertaining to those of us interested in the business of this industry. Only time will tell but if history repeats itself we could see a major change in the landscape of French luxury within two to three years.