Hermes shares fall on family's siege defence

6th December 2010, Comments 0 comments

Shares in French luxury products group Hermes fell on Monday, with investors retreating from a drawbridge defence by the controlling family to withstand a siege by the giant in the sector, LVMH.

Members of the founding family said on Sunday they had locked up more than 50 percent of the shares in Hermes in a holding company, a defence which now depends on regulatory assent.

The price of Hermes shares fell by 3.15 percent to 145.80 euros. The overall market as measured by the CAC 40 index was showing a fall of 0.21 percent.

The extended family, which has inherited the Hermes business, owns 73.4 percent of the company that makes and retails a wide range of products from handbags to scarves and perfume.

The shares had risen strongly recently on a belief that the head of LVMH, Bernard Arnault, was manoeuvering to seize control of Hermes. Soon after he announced his arrival in the capital, Hermes shares rose above 200 euros.

The price of shares in LVMH (Moet Hennessy Louis Vuitton) fell by 0.53 percent to 121.05 euros by mid-day on Monday.

The decision to lock away more than 50.0 percent of the company was taken by a meeting of the inheritors, totalling about 70, in response to a raid by LVMH, which captured 17.1 percent of the capital in October.

The creation of the holding company is intended to prevent LVMH, now the second-biggest shareholder after family interests, from taking control by buying more shares.

LVMH has said the purchase of its stake was a "friendly" courtship.

At CM-CIC securities, analysts said the main question now was the attitude of the stock market authority AMF towards this method of defence against takeover, which the family considers is probably LVMH's objective.

Under stock market rules, the creation of a holding company to keep more than 33.0 percent of a company requires special authority from the AMF or else those members of the family supporting the decision must launch a bid for all of the shares in the business.

The family argues that the creation of the holding company amounts merely to an internal reorganisation of the family interest and does not affect the control of the company by the family.

CM-CIC took the view that the family would do its utmost to be able to activate the holding company without having to launch a full bid.

At brokers Aurel BGC, analysts said the AMF would likely allow the holding company to go ahead without forcing the family to mount a takeover.

But a high-profile defender of the interests of minority shareholders in companies, Colette Neuville, said last week that she would urge the AMF not to exempt the family from the obligation to make a bid.

The AMF has opened an investigation into the methods used by LVMH to carry off the 17.1-percent stake it now holds. LVMH insists that it acted within the rules

© 2010 AFP

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