Hermès is, by our reckoning, the greatest luxury brand in the world by far. The brand is invaluable, the company has executed flawlessly and its financial position is extremely strong. The company weathered the downturn well and has surged as the luxury sector recovered.
Hermès has always expanded cautiously, and analysts believe that with LVMH’s muscle the brand could expand formidably. In particular, most of the new demand for luxury goods is coming from Asia and emerging markets where LVMH has been particularly successful. However, Hermès has a special stock structure where the founding family owns over 70% of the voting rights.
LVMH has said that they have no plans to acquire Hermès however, and the founding family has noted that they intend to remain independent and always have. On a pure financial basis LVMH’s deal makes sense: they acquired the stake through options and derivatives and their holding already represents a large gain.
That being said, that can’t be the only explanation for the deal. Bernard Arnault, the founder of LVMH, has long wanted to add Hermès to LVMH’s portfolio of world-class luxury brands, which includes Louis Vuitton and Christian Dior. Despite its public proclamations, the founding family of Hermès is far from being a united front and with enough cash Arnault might peel off enough of them to pull off a deal, like Rupert Murdoch did with the Bancroft family in buying Dow Jones.
Jean-Louis Dumas, who had been CEO of the company for almost 30 years, passed away recently, and the current CEO of Hermès, Patrick Thomas, is the first CEO who is not part of the founding family. Part of the reason why Hermès’ stock has outperformed is because of longstanding takeout speculation.
Because of Hermès’ performance and its stock structure, LVMH won’t be making a play tomorrow. But it’s hard to believe they’re not in Hermès to win it. Bernard Arnault, the richest man in France, is not known for not getting what he wants.