PARIS — The long and bitter fight between the fashion mogul Bernard Arnault and the Hermès luxury house, which has transfixed the French business world, is nearing a moment of decision.
French securities regulators are set on Friday to lay out their case, the fruit of an inquiry of more than two years. They contend that Mr. Arnault worked by stealth, for more than a decade, in an unsuccessful attempt to muscle in on his smaller rival, adding more than $2 billion to his fortune in the process.
Mr. Arnault, 64, now has more than one-fifth of Hermès’s shares and has denied any wrongdoing. Through his company, LVMH Moët Hennessy Louis Vuitton, he declined to comment.
Under French law, the regulators cannot force him to disgorge his Hermès holdings, and the largest fine he could face is 10 million euros, or $13 million. France’s richest man, Mr. Arnault is worth $29 billion, according to Forbes magazine, and he controls LVMH through his investment vehicle, Groupe Arnault.
Hermès is the last great prize among the independent European fashion houses, after two decades of industry consolidation led by magnates like Mr. Arnault and the PPR-Kering boss François-Henri Pinault.
Mr. Arnault, the architect of LVMH’s rise to No.1 in the world of luxury, has denied conniving to amass the Hermès International shares.
“We never expected to be shareholders in Hermès,” he said at an LVMH shareholders’ meeting on April 18. “We made a financial investment, and it worked out in a manner that we hadn’t anticipated.”
But the regulator, the Financial Markets Authority, is expected to argue on Friday that LVMH carefully planned and executed the accumulation of Hermès shares more than a decade ago in a manner that disguised Mr. Arnault’s involvement until Oct. 23, 2010.
That is the day he shocked Hermès and the financial world with the announcement that he owned a 14.2 percent stake and was taking it to 17.1 percent. (He has since raised it to 22.3 percent.)
According to a report from the regulators that was obtained by the French newspaper Le Monde, LVMH used top investment banks and law firms to devise its strategy. Regulators also say it used tax havens and complicated financial structures to hide its footprints.
Le Monde reported on May 18 that the inquiry had concluded that LVMH’s complicated maneuvering made sense only if the intention was to take a significant stake in Hermès.
Responding to a request for comment, LVMH referred to the statement it made to Le Monde, saying the company “vigorously contests the conclusions of the report.” It also decried the leaking of the report to Le Monde, noting that, by law, the results of such investigations must be kept secret. And it expressed confidence that it would be cleared of any wrongdoing.
An LVMH spokesman also said that the company’s defense would be laid out at the hearing on Friday.
Anne-France Malrieu, a spokeswoman for the family group that controls Hermès, declined to comment, as did Florence Gaubert, a spokeswoman for the market regulator.
Hermès, founded in Paris in 1837, is famed for its silk scarves, leather handbags and clothing. It is also highly profitable, generating net profit of 740 million euros last year, up 25 percent from 2011, on revenue of 3.5 billion euros, up 23 percent. But those results are dwarfed by those of LVMH, which had net profit of 3.4 billion euros last year on sales of 28.1 billion euros.
Beginning in 2001 or 2002, the investigators say, LVMH obtained 4.9 percent of Hermès’s shares through affiliates based in tax havens, just below the 5 percent threshold that would require disclosing the stake under securities regulations. The company then buried that information in its financial reports under misleading rubrics, “in violation of international norms,” Le Monde reported, citing the report.
In 2006, the investigators say, Mr. Arnault began working with his lawyers and the investment bank Rothschild on a plan to win outright control. LVMH started building a position in Hermès stock using financial instruments that can be paid out either in cash or in the underlying shares, the report said. These equity swaps are an opaque form of derivatives.
Article source: http://www.nytimes.com/2013/05/30/business/global/lvmh-hermes-dispute-at-a-boil.html?partner=rss&emc=rss