Hermes family to discuss takeover defenses
PARIS: Hermes International SCA's family shareholders meet today and may discuss ways they can sell stock without rival LVMH Moet Hennessy Louis Vuitton SA gaining control, according to two people familiar with the plans.
The family members, who own 73.4 percent of the Parisbased luxury-goods maker, may want flexibility to sell shares without the worry that LVMH might be buying them, said one of the people, who asked not to be identified as the talks are private.
LVMH, the world's largest luxury-goods maker, said in October it would consider buying more Hermes shares after building a 17.1 percent stake using equity swaps. LVMH has said it doesn't intend to seek a board seat or control of its rival. Hermes hired BNP Paribas SA and Bank of America Corp. as advisers last month to help fend off a possible LVMH takeover bid.
"The whole action is, from an institutional investor point of view, a bit annoying," said Scilla Huang Sun, head of equities at Swiss & Global Asset Management in Zurich, who oversees about 4 billion Swiss francs ($4.1 billion), including LVMH and Hermes shares. "Hermes is a great brand and well-managed business, but the free float is obviously lower and for the next couple of months the stock price will remain volatile."
Hermes fell 9.3 percent, or 15.50 euros, to 150.55 euros today in Paris trading. The stock has surged 61 percent this year, boosting the company's market value to 15.9 billion euros ($21.3 billion). LVMH stock declined 0.4 percent to 121.70 euros, paring its gain this year to 55 percent and valuing the company at 59.6 billion euros.
As an SCA, or Societe en Commandite par Actions, Hermes has a structure that allows members of its founding family to keep control of decision-making even if they become minority shareholders. The fact that the family may feel the need to devise a new structure means "the SCA doesn't secure their capital," Colette Neuville, president of minority shareholder activist group Adam, said yesterday in an interview.
Options for family members include placing their stock in a new unlisted holding company, Le Journal du Dimanche reported Nov. 28. Members of the founding families will be asked to give up some of their rights to sell shares, the newspaper said.
The formation of a holding company or an agreement between the family shareholders to organize control of the share capital would make "a very significant part" of Hermes's stock inaccessible, Neuville wrote in a Dec. 1 letter to France's market regulator obtained by Bloomberg News.
A formal alignment of the relatives' shares means they would be acting in concert under the rules of French stock market regulator Autorite des Marches Financiers, obliging them to make a bid for the rest of the stock, according to Neuville.
Lawyers advising Hermes on the possible structures available for the family to barricade their stake disputed Neuville's reading of the rules, she said. The lawyers took the view that Hermes's SCA status means the family already controls the company and that any new structure to emerge from today's meeting would warrant a simple "reclassification" to the AMF of their existing position, she said.
Hermes lawyer Olivier Diaz referred calls by Bloomberg News to a company spokeswoman. Christel Denef, a spokeswoman for Hermes, said the company has no immediate comment. -Bloomberg