LVMH's 'wolf in cashmere' turns tail on Hermès

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Bernard Arnault has conceded defeat. The LVMH chairman and controlling owner has agreed to distribute the stake he built up four years ago in rival Hermès to the shareholders of his luxury and drinks conglomerate. That's an uncharacteristic retreat for the man dubbed 'the wolf in cashmere.'

The Sept. 3 announcement, brokered by the Paris commercial court, marks the end of a four-year battle between the two luxury groups. In 2010, the Hermès family was caught by surprise when Mr. Arnault revealed that he had built up a 17-per-cent stake in the company, sending Hermès' stock up 15 per cent on takeover speculation. By 2011, the holding was up to 23 per cent.

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The stealth was classic Arnault. He used a similar tactic to acquire a 34-per-cent stake in Gucci in the early 2000s, a thinly disguised takeover attempt that ultimately failed after arch-rival PPR (now Kering ) stepped in and bought the Italian fashion house.

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Back in 2010, the Hermès family closed ranks and created a holding company binding family members into an agreement not to sell stock to outsiders until 2040, effectively closing the door to a hostile LVMH takeover.

This week's peace accord is not all bad news for LVMH, whose shares were up 2.5 per cent by midday on the news. While the development ends the prospect of a takeover, or maybe of a future collaboration with Hermès, LVMH has made more than €3-billion ($4.3-billion) in capital gains on the investment - part of which will now return to investors in the form of Hermès shares.

The truce doesn't necessarily mean that Bernard Arnault has given up all hope of some day adding Hermès to his stable of brands. Groupe Arnault, his personal investment fund, will retain 8.5 per cent of the capital in Hermès International. Mr. Arnault and his companies won't be able to buy new shares for five years, but he remains free to pounce beyond that. He will be watching for any weakening of the family pact.

Mr. Arnault keeps framed photographs of LVMH top brand's designers in his office. For now at least, he won't be adding Hermès to the gallery.