MINICASE Luxury Wars
1A. Why did Hermes International list its share on the public market?
There are several advantages that could encourage a company to go public, key among them being to raise capital for the business to support key strategic decisions. While listing shares on a public market results in dispersion of ownership, companies can limit the number of shares that are offered to the market to ensure that majority ownership is held closely, which is typical of family owned businesses. These types of businesses are referred to as public/private hybrids and are said to outperform indexes of public companies in United States, France, Germany, and Western Europe.
Hermes International is a multi-billion dollar French business owned and controlled by the Hermes family. The business makes and sells luxury goods across numerous product categories. After being passed down through several generations the company decided to list its share on the public market for the reasons listed below:
To provide family members with a means to value their stake in the company
To allow partial ‘cash-outs’ if dividends alone were insufficient, knowing that some family members were known to maintain lavish lifestyles
To raise capital while still being able to influence important decisions (like electing the CEO or Chairman), and still controlling the strategic and operational decisions of the firm
To obtain financing that would support the long term development of the company and to accommodate ease of trading for shareholders in transfer of ownership.
1B. What risks comes from a public listing?
Amidst the several advantages of going public there are equally associated risks for a company to consider when making such decisions. The list below, while not exhaustive, identifies some of the risks associated with a company going public:
The agency problem. When a company goes public it runs the risk of minimal interest. The potential for this conflict comes along as the objective of management and owners
There are several advantages that could encourage a company to go public, key among them being to raise capital for the business to support key strategic decisions. While listing shares on a public market results in dispersion of ownership, companies can limit the number of shares that are offered to the market to ensure that majority ownership is held closely, which is typical of family owned businesses. These types of businesses are referred to as public/private hybrids and are said to outperform indexes of public companies in United States, France, Germany, and Western Europe.
Hermes International is a multi-billion dollar French business owned and controlled by the Hermes family. The business makes and sells luxury goods across numerous product categories. After being passed down through several generations the company decided to list its share on the public market for the reasons listed below:
To provide family members with a means to value their stake in the company
To allow partial ‘cash-outs’ if dividends alone were insufficient, knowing that some family members were known to maintain lavish lifestyles
To raise capital while still being able to influence important decisions (like electing the CEO or Chairman), and still controlling the strategic and operational decisions of the firm
To obtain financing that would support the long term development of the company and to accommodate ease of trading for shareholders in transfer of ownership.
1B. What risks comes from a public listing?
Amidst the several advantages of going public there are equally associated risks for a company to consider when making such decisions. The list below, while not exhaustive, identifies some of the risks associated with a company going public:
The agency problem. When a company goes public it runs the risk of minimal interest. The potential for this conflict comes along as the objective of management and owners