Profile: The height of fashion: Nicholas Faith charts the triumphs and tribulations of Bernard Arnault, whose cool leadership of the LVMH empire has been ruffled by write-downs at Guinness

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THERE is an old French fable in which the hare and the weasel ask the cat to mediate between them. The cat solves the problem in the logical French fashion, by swallowing them both.

Friends of Bernard Arnault, who despite his relative youth is now one of France's leading businessmen, take great pleasure in comparing him to the cat.

Three years ago, Arnault outwitted a leading technocrat, Alain Chevalier, and Henri Racamier, one of France's wiliest wheeler-dealers, to win control of LVMH, owner of the world's largest collection of luxury brands. The stable he inherited included Hennessy Cognac, Moet champagne, Dior perfume, and Louis Vuitton luggage. He had already shown great clear-sightedness - and cold-bloodedness - in dismembering the sprawling but bankrupt Marcel Boussac textile empire.

At 41, the slender, tense and coiled Arnault could be on the verge of yet another coup. A rumour, not denied by either side, was sweeping Paris last week that he was about to bid for part or all of France's biggest newspaper empire, the troubled chain built up by Robert Hersant. It includes several leading French provincial papers as well as Le Figaro, the leading Paris-based daily.

Arnault's original ambition was to be a concert pianist. But he soon decided that he would never be good enough, so he concentrated his ambitions on academic honours and graduated from the Polytechnique, one of the country's select grandes ecoles.

For 10 years, he worked in his grandfather's modest construction business. When Francois Mitterrand came to power in 1981, he spent several years in (moderately successful) property development in Florida. Three years later, Arnault's fear of revolution had evaporated and he returned to France.

He was immediately adopted by Antoine Bernheim of Lazard Freres, the most influential of France's investment banks. With Bernheim's backing, he bought control of the remnants of the once-proud Boussac textile empire - including the fashion side of Christian Dior.

Arnault now had the opportunity to exploit two apparently incompatible passions - for fashion creativity and for ruthless business reorganisation. 'I'm fascinated by creators,' he has admitted. He indulged his fascination to the full, backing the young designer Christian Lacroix, as well as the Dior business. He sacked Dior's chairman and the long-time creative designer, Marc Bohan.

At the same time, he brought some financial sense to the Boussac empire, helped by mass redundancies and the sale of the Peaudouce paper-nappy business, bought by Procter & Gamble for pounds 200m.

But in 1988 came the start of the two-year battle for control of LVMH, the agglomeration of famous brands whose roots go back to the 18th century. By the late 1960s, Moet had swallowed up Mercier and bought Dior's perfume business - from Marcel Boussac. In 1971, Moet's long-term boss, Robert-Jean de Vogue, had engineered a friendly merger with another aristocratic name, Hennessy. After de Vogue's death in 1975, the group was run successfully by Alain Chevalier, an archetypal French technocrat.

The gathering of the luxury clans went one stage further in September 1987, when Moet Hennessy merged with Louis Vuitton. This historic example of French luxury production, making some of the world's ritziest luggage, had stagnated for generations until it was energised in the late 1970s by Henri Racamier, a retired steel magnate who had married into the Vuitton family. In 10 years, he had multiplied sales by a hundred times, transforming the name into one of the key international brands of the high-spending 1980s.

The apparently peaceful merger set off one of the bloodiest corporate battles seen in France. Chevalier found Racamier, a stubborn individualist, difficult to work with. So he brought in Anthony Tennant, then of Guinness, to support him by taking a shareholding of 20 per cent in LVMH. Racamier struck back by bringing in Arnault as an even whiter knight.

Arnault started the action with a partial bid for 25 per cent of the shares. Bernheim then brought the warring parties together to prevent anything so vulgar as a takeover battle. The result was a gentleman's agreement, which failed only because so few gentlemen were involved.

By early 1989, Chevalier had been forced out, and the battlefield was left to Arnault and Racamier. They soon fell out. Arnault won, despite overwhelming support for Racamier in the French press. But Arnault had the crucial support of the Moet and Hennessy families - and the French courts.

The battle left a dangerous legacy - a management badly needing a period of peace and stability to cope with the storms they knew would descend on luxury goods businesses in the 1990s. Arnault's astonishing rise had naturally given him the reputation, rarer and less reputable in France than in Britain or the United States, of being a wheeler-dealer rather than an industrial manager.

Before and during the battles, LVMH had been firing on all cylinders for years. Indeed it is a well- balanced group. Sales are judicioulsy divided between Europe, the United States and the Far East, and there is a similar sales split between the divisions. Champagne accounts for around 30 per cent of sales, with cognac, perfume and luggage accounting for just under a quarter each.

OVER the past three years, Arnault has earned the respect of the tough barons who run LVMH's divisions, themselves world-famous empires in their own right. They have nothing but praise for the intelligent, sharp, but relatively hands-off way he runs the empire, sticking to financial controls and key appointments. He also has the courage to be tribal: his choice of Henri de Pracomtal, a brilliant young scion of the founding family, to succeed his father Alain at Hennessy was a great success.

In Champagne, he has held a delicate balance between Yves Benard, the deceptively modest local lad who runs Moet, and Joseph Henriot, the highly independent maverick who had engineered an earlier merger between Vuitton and Veuve Clicquot. Arnault also cemented the links with Guinness, by forming a network of joint distribution companies in many of the world's biggest liquor markets, notably the US and Japan.

Indeed, his life and his image have both been transformed in the past couple of years. He divorced his first wife, the daughter of an important local businessman near his birthplace in the textile belt of northern France, and married a young and glamorous Canadian concert pianist - a classic example of what New Yorkers would call a Trophy wife.

He has even emerged from his social shell. Where previously he had shunned the charity dinner circuit, the couple are now found at the sort of ultra-select gatherings in Paris and New York that are entirely suitable for the chairman of such a glamorous, high-profile group.

Last week, perhaps worried by the delicate state of the negotiations with Hersant, a notoriously difficult man, Arnault showed an uncharacteristic bout of jitters. It was totally unlike his normal cool style to blame write-offs at Guinness for imagined troubles at LVMH, which owns 24 per cent of the British company, which, in turn owns 45 per cent of Jacques Rober, which controls 46 per cent of shares in LVMH.

The worries could be due to the curious structure Arnault and Bernheim devised to give Arnault control, not only of LVMH, but also of Arnault's other interests, including Lacroix, Celine, the Dior fashion business and two important French retailers, the Bon Marche store group and the Conforama chain of furniture stores. Both are suffering from the problems that have hit the French retail sector in the past year.

If Arnault has difficulties, they are not down to LVMH, which is surviving the cold climate of the past couple of years with remarkable success. They rather stem from the tangled web of companies that enables the family company, Arnault & Associes, with a stock market value of under pounds 30m, to control an empire worth 12 times as much.

His family owns 60 per cent of Arnault & Associes, but this owns only 36.23 per cent of the main holding company, Financiere Agache, in which Lazards and Banque Worms each have a 10 per cent stake. Agache directly owns 48.02 per cent of Au Bon Marche - but it has control because another 4 per cent is owned by an unquoted investment company in which Agache has a 78 per cent stake.

This tangled skein dates back to Arnault's earlier incarnation as a wheeler-dealer. It would be ironic if this legacy caused him problems, having so successfully transformed himself into the very model of an international chief executive.

(Photograph omitted)