Louis Vuitton owner faces maximum fine in luxury row

Fri May 31, 2013 2:37pm EDT
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By Astrid Wendlandt and Pascale Denis

PARIS (Reuters) - A battle between French luxury handbag makers spilled out into the public eye on Friday with market regulators seeking the maximum fine for Louis Vuitton owner LVMH (LVMH.PA: Quote) for failing to disclose moves to build a stake in rival Hermes (HRMS.PA: Quote).

The row centers around deals, first disclosed in late 2010, by LVMH owner and France's wealthiest man Bernard Arnault that have left the firm with a roughly one fifth stake in its biggest rival, the producer of the iconic Kelly and Birkin handbags.

Arnault, who has built LVMH by steadily acquiring other brands over the last decade, says he is happy to remain a long-term shareholder while some industry observers say he may be playing a long game in the hope of someday convincing Hermes' family owners to sell out.

Hermes owners have fought tooth and nail against Arnault, however, since discovering LVMH had built up an initial 14 percent stake.

Regulator AMF said on Friday that LVMH's dealings regarding its stake building in Hermes were opaque and represented grave misconduct which could even be regarded as "fraudulent behavior".

LVMH, which now owns 22.6 percent of Hermes, surprised the stock market in October 2010 when it announced it had a 14 percent stake, gained partly via derivatives that allowed it to not declare its holding.

The AMF said LVMH should have disclosed in its accounts the size of its exposure to Hermes shares through equity derivatives acquired in 2008 as well as the fact it had a Hermes stake of just under 5 percent acquired in 2001 and 2002.

In France, companies are required to disclose when they take a stake worth more than 5, 10 and 15 percent of a another company's capital if the target is listed on the stock market.   Continued...

A volunteer holds a bottle of sparkling wine next to a Louis Vuitton advertisement installation during a reopening event at the KaDeWe (Kaufhaus des Westens) luxury department shopping store in Berlin September 25, 2012. Picture taken September 25, 2012. REUTERS/Tobias Schwarz