LVMH versus Hermès:
Case Questions
1. Hermès International was a family-owned business for many years. Why did it then list its shares on a public market? What risks and rewards come from a public listing?
Although in its sixth generation of family ownership, a number of the family members wanted to ‘cash-out’ of the business. Ordinarily this would be affected by having other family members buy those shares or interests. But other family members did not either have the capital or interest in buying those interests. The solution was to list 25% of the company’s shares on the public marketplace, therefore accessing a liquid capital market for the firm’s shares. The risk of a public listing is the increasing reporting and transparency (information for customers, suppliers, and competitors), and the fact that any investor can purchase those shares – even LVMH.

2. Bernard Arnault and LVMH acquired a large position in Hermès shares without anyone knowing. How did they do it and how did they avoid the French regulations requiring disclosure of such positions?
LVMH had acquired the position under the radar of the Hermès family, company management, and industry analysts, by using equity swap. Equity swaps can be structured so that only their value is tied to the equity instrument; at close-out the contract may be settled in cash, not shares. Using this structure, the swap holder is not required to file with the AMF, since they will never actually own the stock.

3. The Hermès family defended themselves by forming a holding company of their family shares. How will this work and how long do you think it will last?
The holding company structure essentially prevents other family members from taking their shares to the public marketplace – a risk associated with any family business where the many generations have grown increasingly apart, distant, and possibly in