Mini Case Luxury Wars
Mini Case: Luxury Wars – page 54
1. Hermes decided to list 25% of Hermes SA on the French stock market in 1993. This was done to provide family members with a means to value their stake in the company as well as partially cash-out if they felt their family dividends were not enough.
2. LVMH was able to attain such a large ownership position without the knowledge of Hermes family and management through equity swaps. Equity swaps are derivative contracts whereby two parties enter into a contract to swap future cash flows at a preset date. The cash flows are referred to as “legs” of the swap. In most equity swaps, one leg is tied to a floating rate like LIBOR (the floating leg), and the other leg is tied to the performance of a stock or stock index (the equity leg). It is also possible for an equity swap to have two equity legs.
LVMH was able to avoid French regulations requiring disclosure of this type of position through tying only their value to the equity instrument and at maturity, the contract would be settled in cash and not shares. The contract is worded so that LFMH would have the “option” to take the shares as opposed to the contract requiring share settlement, which in the case of the latter, under French law, LVMH would have had to make a public disclosure.
3. In December 2010, the Hermes family decided to confirm its long-term unity by creating a family holding company separate from Emile Hermes SARL, which will hold the shares transferred by family members representing over 50% of Hermes International’s share capital. The family’s commitment to create this majority holding company is irrevocable. The new family-owned company will benefit from preferential rights to shares still directly owned by the family. This would ensure that their 73% ownership stake would always vote as one voice and ultimately secure the family’s continued control of the company.
This holdings structure will last indefinitely as this majority holding will not
1. Hermes decided to list 25% of Hermes SA on the French stock market in 1993. This was done to provide family members with a means to value their stake in the company as well as partially cash-out if they felt their family dividends were not enough.
2. LVMH was able to attain such a large ownership position without the knowledge of Hermes family and management through equity swaps. Equity swaps are derivative contracts whereby two parties enter into a contract to swap future cash flows at a preset date. The cash flows are referred to as “legs” of the swap. In most equity swaps, one leg is tied to a floating rate like LIBOR (the floating leg), and the other leg is tied to the performance of a stock or stock index (the equity leg). It is also possible for an equity swap to have two equity legs.
LVMH was able to avoid French regulations requiring disclosure of this type of position through tying only their value to the equity instrument and at maturity, the contract would be settled in cash and not shares. The contract is worded so that LFMH would have the “option” to take the shares as opposed to the contract requiring share settlement, which in the case of the latter, under French law, LVMH would have had to make a public disclosure.
3. In December 2010, the Hermes family decided to confirm its long-term unity by creating a family holding company separate from Emile Hermes SARL, which will hold the shares transferred by family members representing over 50% of Hermes International’s share capital. The family’s commitment to create this majority holding company is irrevocable. The new family-owned company will benefit from preferential rights to shares still directly owned by the family. This would ensure that their 73% ownership stake would always vote as one voice and ultimately secure the family’s continued control of the company.
This holdings structure will last indefinitely as this majority holding will not