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
LVMH may claim they don't want to take over control but there is no sharity in this kind of business. When they see an opportunity to make more profit, they won't let that chance pass by. In the long term eager will mostly take the upperhand.
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