LVMH renewed its quest for more than €100m (£70m) in damages from Morgan Stanley yesterday after a French appeals court upheld a ruling that research issued by the bank had caused the luxury goods giant "moral and material damage".
But the court struck out a ruling that Morgan Stanley's star luxury goods analyst, Claire Kent, had produced research which was biased against LVMH, enabling both sides to claim victory.
The fight between the US investment bank and the French luxury goods company began in 1999 when LVMH accused Morgan Stanley of a "campaign of aggression" intended to boost the fortunes of its rival, Gucci. At the time, LVMH was in the throes of a takeover battle with its rival Pinault-Printemps-Redoute for Gucci, which was being advised by Morgan Stanley. LVMH lost the contest.
The French fashion conglomerate took Morgan Stanley to court and won its initial skirmish when the Paris commercial court ruled in January 2004 that the equity research had been biased. But yesterday's ruling largely overturned that, finding fault with the research on just two points concerning comments made by the bank's investment banking head, Michael Zaoui, in an interview with the Financial Times and errors made in the small print of a research report regarding Morgan Stanley's investment banking relationships with LVMH.
Patrick Ponsolle, the chairman of Morgan Stanley in France, said the appeal court had dismissed the core of LVMH's claims. "On the allegations of biased research, Morgan Stanley's reputation, and that of its analyst, Claire Kent, have been completely vindicated. This represents an important victory for freedom of expression, analyst independence and the industry as a whole."
However, in a statement, LVMH said the court had ruled that Morgan Stanley was "guilty of serious misconduct" against the luxury goods house. It said it was seeking more than €100m in compensation for the moral and material damages done to its business. LVMH shares closed 3 per cent higher in Paris at €77.60.
The amount of any damages will be up to an independent arbiter to judge. Then the case will return to the appeals court one final time. Morgan Stanley has already paid LVMH €30m after the January 2004 ruling - money it says it will now ask to be returned, with interest. The appeals court has until 1 April 2007 to determine the final amount of damages.
The LVMH lawsuit was the first in Europe to claim that equity analysts are influenced by work carried out by their investment bankers. Ms Kent cut her recommendation on LVMH to "neutral" from "outperform" in May 2000, just as the battle for Gucci was raging.