LVMH and Hermes call truce in 'handbag war'

Wed Sep 3, 2014 12:41pm EDT
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By Astrid Wendlandt

PARIS (Reuters) - A long and bitter battle that has gripped the luxury goods industry and pitted two of France's richest families against each other came to an unexpected end on Wednesday when LVMH and Hermes agreed to a truce.

Under the deal, LVMH - the world's No.1 luxury group, controlled by France's wealthiest man Bernard Arnault - agreed to relinquish most of its 23.2 percent stake in Hermes and not acquire any shares in its smaller rival for five years.

It effectively buried the possibility LVMH could make a full takeover bid for the 177-year-old maker of Birkin and Kelly handbags. Such a prospect had boosted Hermes's stock, which has been trading at a price-to-earnings ratios of about 30 times in recent years, a 70 percent premium to the industry average.

Shares in Hermes fell nearly 10 percent to 236.5 euros in early trading on Wednesday, wiping out 2.8 billion euros ($3.7 billion) off its market value - equivalent to around 350,000 Birkin handbags based on an average price of 8,000 euros. By market close, they were down 3.5 percent.

"The speculative premium has disappeared," said Barclays France director Franklin Pichard.

The deal, under which LVMH agreed to redistribute its stake in Hermes to its shareholders, ends four years of legal warfare between the luxury titans, dubbed the "handbag war" by the press.

In 2010 LVMH - whose brands include fashion labels Christian Dior and Louis Vuitton, Hennessy cognac and Dom Perignon champagne - revealed it had built up a 17 percent stake in Hermes. It made the investment through a series of equity derivatives instead of straightforward share purchases, which prevented it from having to declaring them.

Hermes, one of France's last major independent luxury group still controlled by the founding family, vehemently protested at having its arch-rival as its biggest external shareholder.   Continued...

LVMH Chief Executive Bernard Arnault arrives to attend a dinner at the Elysee Palace in Paris September 1, 2014. French luxury groups LVMH and Hermes have settled on September 3, 2014 their dispute over LVMH's 23.2 percent stake in the maker of Birkin and Kelly handbags, striking a deal under which the holding will be distributed among LVMH's shareholders. REUTERS/Christian Hartmann