Abstract

This case discusses how Hermes International SCA (Hermes), France-based luxury goods manufacturer, thwarted a takeover attempt of its family-managed business by France-based world leader in high-quality luxury products, LVMH Moet Hennessy Louis Vuitton SA (LVMH), in a bid to preserve its core values and culture and keep the family-managed business independent. Hermes was founded in 1837 by leather harness maker, Thierry Hermes. Over the years, members of succeeding generations of the Hermes family took over the reins of the family business. In 1978, Jean Louis Dumas (Jean Louis), a fifth generation member of the Hermes family, assumed the leadership at Hermes at a time when the company’s fortunes were declining. He was credited with transforming the company into a successful business house. The luxury giant had built its success with excellence and authenticity of expertise in craftsmanship and prided itself on its core values of elegance, timelessness, and quality creations — values which were cultivated even among its staff members. The core values were embedded in Hermes’s culture and so the family-managed business invested heavily in creativity, the crucial component at Hermes. Hermes also fostered a culture of creativity and perfection where employees were trained to do nothing but their best. For several years, the business house was run by family members. In 2006, for the first time, an outsider, Patrick Thomas (Thomas), was appointed as the CEO of Hermes, succeeding Jean Louis. In February 2014, Thomas retired and Axel of the sixth generation of the Hermes family was appointed CEO of Hermes. Axel took over the reins of the family business when the company was going through challenging times, with the battle with LVMH looming large. While the Hermes family aimed to keep the family-managed business independent due to its rich history, culture, and core values, Bernard Arnault (Arnault), CEO of LVMH, was attempting to take over the family business. Since October 2010, Hermes and LVMH had been at loggerheads after the Hermes family found out that LVMH had secretly increased its stake in Hermes from 8.5 percent in 2001 to 17.1 percent in 2010 through cash-settled equity swaps. In October 2010, France’s regulation authority, Autorité des Marchés Financiers (AMF), said it would verify whether LVMH had respected rules related to stake thresholds while building its stake in Hermes. The Hermes family branded the move by LVMH as an attack and questioned its business tactics. In a bid to preserve the culture and core values at Hermes and to keep its family business independent, in December 2010, the successors of Hermes decided to set up a holding company called H51, pooling 50.2 percent of its capital, thereby protecting the control of the Hermes family and preventing a complete takeover. In September 2012, Hermes sued LVMH and asked French prosecutors to open a probe into alleged stock price manipulation and unfair insider trading by LVMH. LVMH countersued Hermes complaining of false allegations and defamation. In June 2013, the AMF recommended that LVMH be fined €10 million for breaching disclosure rules when it was building up its stake in Hermès. With the dispute between Hermes and LVMH showing no signs of coming to an end, in September 2014, Franck Gentin (Gentin), President of the Commercial Court of Paris, intervened and proposed a conciliation to Hermès and LVMH to bring an end to the conflict between the two groups and restore a climate of positive relations between them. Both Arnault and Axel reacted favorably to the proposal and signed an agreement under which LVMH had to relinquish most of its stake in Hermes and agree not to buy any shares in Hermes for another five years, i.e. till 2019. The distribution of shares was completed by December 20, 2014. Following this, Groupe Arnault SAS, the holding company of LVMH, retained its original stake of 8.5 percent in Hermes. Some luxury analysts felt that Hermes would have benefited from a takeover by LVMH since both the companies were reputed luxury fashion houses. On the other hand, Axel maintained that the family culture and core values would have been diluted if the takeover had occurred. Moreover, the Hermes family wanted to keep its family-managed business independent.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Study how the core values of craftsmanship, quality, and its rich history made Hermes one of the most renowned luxury brands in the world.
• Understand how fostering a culture of creativity and perfection was crucial in achieving success for the family-managed business.
• Critically analyze the hostile takeover attempt by LVMH.
• Understand the defense strategies adopted by Hermes to thwart LVMH’s hostile takeover.
• Analyze the role of the Hermes family’s board in the takeover battle.

Keywords

Hermes International, LVMH, Axel Dumas, Bernard Arnault, Family-managed business,Craftsmanship, Core values, Culture, Creativity, Cash-settled equity swaps, Hostile takeover, Family legacy, Succession planning, Paris Commercial Court, Autorité des Marchés Financiers, Groupe Arnault SAS