There is no love lost between French luxury house LVMH and its smaller rival Hermès despite the financial ties between them.
In 2011, then-Hermès chief executive Patrick Thomas reacted with absolute fury when he learnt that LVMH had used derivatives to build up a stake in the company. In a notoriously crude statement, he said: “If you want to seduce a beautiful woman, you don’t start by raping her from behind.” Hermès then went to court to prevent LVMH and its controlling Arnault family from mounting a takeover of a group best known for silk scarves and Birkin handbags.
On Tuesday, the Arnault family finally walked away, announcing that they were swapping out of their last Hermès shares as part of a wider corporate restructuring.
The Arnaults are using those shares to buy out minority investors in another iconic French fashion brand, Christian Dior, a company that Bernard Arnault bought for one franc in the 1980s.
In the process the family is also tightening its grip on LVMH, the world’s largest luxury company by revenues that owns a sprawling stable of brands including Louis Vuitton handbags and Moët & Chandon champagne. After the deal, the Arnault family’s stake in LVMH will increase from 36 per cent today to 46 per cent, according to analysts.
Groupe Arnault is paying about €12.1bn in cash and Hermès shares to take complete ownership of Christian Dior, which in turn owns Christian Dior Couture and 41 per cent of LVMH. The price values Dior at €260 a share, a 15 per cent premium over Monday’s closing price.
Groupe Arnault will then sell the Dior Couture business to LVMH, reuniting it with Dior’s fragrance and cosmetics division that is already part of LVMH. Groupe Arnault said Dior’s couture business had an enterprise value of €6.5bn.
Of all the assets in Mr Arnault’s empire, Dior is said to be his most beloved. “Dior is Arnault’s baby,” says one person who knows him well.
It all began when Mr Arnault took control of a bankrupt textile company called Boussac, whose assets included a maker of babies nappies, a retailer, French department store Le Bon Marché — and Christian Dior. “At the time Christian Dior couture was a lousy company,” Jean-Jacques Guiony, LVMH’s chief financial officer recalled on Tuesday.
But Mr Arnault saw Dior’s potential and, after selling off most of Boussac’s other assets, he set out to restore it to its former glory, installing Sidney Toledano as Dior Couture’s chief executive. Mr Toledano, a charismatic French-Moroccan, is credited with executing Mr Arnault’s vision of global expansion for the group, and helping to steer it through difficult periods, including the departure of its star designer John Galliano in 2011.
Since then, Dior Couture has doubled revenues to €2bn last year. It reported organic revenue growth of 17 per cent in the first quarter of 2017, boosted by the early success of its new creative director Maria Grazia Chiuri.
But Dior Couture always remained separate from Mr Arnault’s other big company, LVMH, which was created through the 1987 merger of fashion house Louis Vuitton and spirits group Moët Hennessy, even though Dior’s perfume brands are owned by the larger conglomerate.
LVMH hopes that bringing all of Dior under one roof will fuel rapid growth — one analyst suggests the target is now to expand Dior Couture’s revenues to €3bn by 2020.
“This shows that LVMH is ambitious,” says Olivier Abtan, a partner and managing director at consultancy BCG. “It’s a signal that while the luxury sector may only be growing at 2 per cent to 5 per cent a year, LVMH is going to grow faster.”
The Arnault family’s decision to give up on Hermès and concentrate on LVMH comes at a time when sales in the luxury sector have rebounded and company valuations have increased by 20-25 per cent in the past nine months, says Thomas Chauvet, a luxury goods analyst at Citi.
Mr Arnault told the Financial Times on Tuesday that LVMH is not actively looking at external acquisitions because there are fewer attractive assets. “And the best assets are not for sale,” he said with a smile.
“Hermès was the perfect target,” says a person close to the group. “And Arnault thinks of Chanel every day. It’s his best enemy.”
Tuesday’s deal puts the Arnault dreams of owning Hermès firmly in the past. While LVMH always claimed it had no intention of launching a full takeover, the Dumas family who own Hermès believed otherwise, and the two houses embarked on a lengthy battle over LVMH’s stake.
In 2014, a French court ruled that LVMH had to sell down its stake from 23 per cent. Group Arnault hung on to an 8 per cent position that it will now use to help pay for the 25 per cent of Dior it does not already own.
Mr Arnault’s move to simplify the group structure prompted suggestions that it is part of a longer-term focus on succession by the 68-year-old patriarch.
Three of Arnault’s five children already have senior positions in the LVMH group: 42-year-old Delphine is number two at Louis Vuitton and her brother Antoine, 39, is chief executive of Berluti and chairman of Loro Piana. Alexandre, the eldest of three sons from Mr Arnault’s second marriage, was propelled into the limelight in October, when LVMH bought a majority stake in German luggage maker Rimowa and named the 24-year-old co-chief executive.
But friends insist that Mr Arnault has no plans to retire soon. According to one person who knows the group well: “This is a man who thinks he’s going to work forever.”
