LVMH claims to buy shares without wanting to take control

This year, the sale of luxury goods could climb to the highest level since 2007. According to Hermes, their sales may climb 12 percent this year. LVMH - Moet Hennessy Louis Vuitton SA - made 10.3 percent of profit last year, while Hermes made 15.1 percent.

LVMH already bought 14.2 percent assets in Hermes International SCA and is now talking about a raise to 17.1 percent. LVMH is the world's largest maker of luxury goods but claims not to have an interest in taking control of its rival, launching a tender offer or seek board representation. LVMH is just seeking to be a long-term shareholder of Hermes. The company is willing to pay 1.45 billion euro's for this purchase.

Former Chief Executive Officer Jean-Louis Dumas died the 1st of May. Ever since, the Hermes shares have climbed 77 percent in Paris, on speculation that the company's founding family may be more willing to sell. LVMH claims to fully support the strategy implemented by the founding family and the management team.

Buying 14.2 percent of the company stands equal to buying 15,016,000 shares. This all has to be paid of course. Therefore, LVMH is willing to sell the rest of its drinks unit to Diageo Plc. They could get 10.5 billion pounds out of this. Now Diageo already owns 34 percent of the drinks unit, after this, they would obtain full ownership of several brands, including Moet champagne and Hennessy cognac. This money is certainly welcome for LVMH. Shares were bought with an average price of 80 euro's a share. On the 22nd of October, the shares closed at 176.20 euro's in Paris trading.

In my opinion, LVMH will want to gain more control after buying all those assets of Hermes. When you make an investment like this, you want to get more out of it according to me. They paid a lot of money and even sold their drinks unit, you don't act this drastically without a greater purpose. I think they will want to have a say in board meetings.
They may say they respect the family business - and I really hope they do - but they are still rivals and that concerns me.
I couldn't find information about the reaction of Hermes but I hope they won't give away too much control.

http://www.businessweek.com/news/2010-10-23/lvmh-buys-14-2-of-hermes-says-won-t-seek-control.html

Citigroup and Terra Firma begin legal battle over EMI buyout

The article is about the selling of the venerable record label EMI which has been the home for the Beatles, Black Sabbath, Snoop Dogg and Lily Allen for 4 billion pounds.

US attorney Boies David claims that David Wormsley of Citigroup misled his client (Guy Hands: founder of Terra Firma) into believing that there was another bidder for the record company. Hands and Wormsley were once close friends but didn’t acknowledge each other in court.

Wormsley did a lot of effort to win the trust of Hands by telling him that he would search for the best possible outcome.

Here is a conflict of interest. Wormsley told EMI’s chief executive that he and Guy Hands on several of occasions discussed about the purchase. Citigroup was the advisor to both parties. Terra Firma confirmed its bid for EMI after they still believed there was another bidder, namely the US private equity firm Cerberus. Citigroup gave Terra Firma a deadline to decide whether they would buy EMI or not at the request of another bidder.

Boies claimed Citigroup knew that Hands would not be able to withdraw once he had placed a bid, for fear of damaging his reputation as an important player in private equity.

Theodore Wells, Citigroup’s council, said that Wormsley is an honest person who never misled Hands by lying about the interest of Cerberus. Hands buys and sells companies and tells his investors they will make a lot of money. Now this deal appeared to be a bad deal so he says he was tricked by David Wormsley rather than take responsibility. Citigroup also invested in the deal so they also suffered and didn’t at any time trick Terra Firma into buying EMI.

I think that Hands wouldn’t invest 4 billion pounds without any research whether or not it is a good investment. It could be that he is not willing to take responsibility for his acts and by going to court, the deal might not have existed when the court of New York pronounces Wormsley guilty.

Daphné V.E.


http://www.guardian.co.uk/business/2010/oct/18/citigroup-terra-firma-legal-emi