LVMH and Hermès settle four-year dispute

The deal will leave Groupe Arnault controlling only 8.5% of Hermès shares

French CEO of LVMH Bernard Arnault (centre) pictured at the Christian Dior 2014/2015 Haute Couture Fall-Winter collection fashion show on 7 July, 2014, in Paris (AFP/Getty)

A ceasefire has been called on the biggest row in luxury, ending the dispute over French giant LVMH’s 23.2 per cent stake in Hermès.

French rival Hermès, known for its expensive handbags and silk scarves, and LVMH, run by France’s richest man Bernard Arnault, have settled a four year dispute - involving lawsuits and personal attacks - after LVMH had secretly built up the stake in the family-run maker of Birkin handbags.

Now, after conciliation talks brokered by the Commercial Court of Paris, Arnault has agreed to distribute the stake to shareholders in LVMH, Christian Dior and the Arnault family investment firm Groupe Arnault.

The deal, to take place in December, will leave Groupe Arnault controlling only 8.5 per cent of Hermès shares – dashing Arnault’s plan to take it over, for now.

With hopes of a takeover gone – and Arnault’s side promising to not buy any more shares in Hermès for the next five years - Hermès shares tumbled 6 per cent.

Arnault, known as the wolf in the cashmere coat for his shrewd business dealings, will have helped LVMH investors make a profit of around €3 billion from the deal.

The windfall helped LVMH shares jump 3 per cent.

Arnault and his family investment arm Groupe Arnault will be one of the main beneficiaries of the share distribution – likely to be through a special dividend. Through his complex share ownerships he controls around a third of LVMH. Groupe Arnault controls 70.5 per cent of Christian Dior which in turn controls 41 per cent of LVMH.

The deal will also mean the liquidity of Hermès will improve by the end of the year.

Analysts said that although the agreement is a blow to any near-term takeover, the move by Arnault shows he is a pragmatic businessman as a long running court case would have been bad for his image. LVMH was already fined €8 million by France's markets watchdog AMF last year for the secret stake-building.

The LVMH shareholding was a shock to the Hermès family when it was revealed in 2010 and then-chief executive Patrick Thomas criticised Arnault’s tactics and said: “If you want to seduce a beautiful woman, you don't start by raping her from behind.”

A statement today, issued by LVMH, said Hermès chief executive Axel Dumas, who last year took over from Thomas, and Arnault both expressed their “satisfaction that relations between the two groups, representatives of France’s savoir-faire, have now been restored.”