The French exchange commission Autorité des Marchés Financiers (AMF) is demanding the maximum fine of 10 million euro for luxury goods company LVMH. It has focused on the French company for the way it has built a stake in Hermès, the French producer of luxury bags under the brands Kelly and Birkin.
Illegal transactions or not?
LVMH currently owns 22.6 percent of the shares of Hermès, but it largely acquired them in silence. According to Hermès this happened through illegal transactions and through manipulating the market price.
LVMH surprised its competitor in October 2010 by announcing it had built a stake of 14 percent in the company. This happened through ‘derived products’, that did not have to be reported to market authorities, according to LVMH: it did not concern the stock themselves. In France it is an obligation to report when the participation threshold of 5 percent in a publicly traded company is exceeded.
The direct investment in shares stayed just under the reporting threshold of 5 percent until 2010, and it was only when LVMH turned the derived products into shares, it reported them. The AMF does not follow the reasoning of LVMH and says LVMH kept its position in Hermès hidden for too long. That is why the researchers are asking for the maximum penalty of 10 million euro.
Hermès protects itself from hostile takeover by LVMH
The target Hermès is not interested in a bigger influence of LVMH and has put a construction for protection in place, to avoid that its French rival would increase its stake. Hermès also contests the acquirement of the participation in another proceedings, fearing LVMH and its CEO Bernard Arnault are working towards a takeover - although Arnault says it is only a long-term investment.
Hermès is largely owned by the families Puech, Dumas and Guerrand, who group more than 75 direct descendants of founder Emile Hermès. A part of the shares bought by LVMH did however come from the family Puech, showing not everything is running smoothly between the families.
In a few weeks the sanction committee of the AMF will decide on the matter. An attempt of LVMH to have the complaint deemed inadmissible, was declined by the AMF.