July 2, 2013
Luxury conglomerate LVMH Moët Hennessy Louis Vuitton was fined $10.4 million by the Autorité des Marchés Financiers for its way of acquiring a share in family-owned French leather goods maker Hermès.
The fine handed down to LVMH July 1 is lower than the maximum fine of approximately $13 million, or €10 million. Although this battle will continue, news of the fine could hurt LVMH in the eyes of the public.
“Not only can LVMH appeal, but there are also related pending matters, including the defamation claim,” said Susan Scafidi founder of the Fashion Law Institute at Fordham Law, New York.
“€8 million can certainly make for a dramatic headline, but perhaps the most interesting question regarding the decision is why the AMF imposed a lesser fine than the €10 million recommended by its board,” she said.
Ms. Scafidi is not affiliated with Hermès or LVMH, but agreed to comment as an industry expert.
When handing down the decision, the AMF said, “The company [LVMH] was accused of failing to inform the market that it was preparing to raise its stake in Hermès and of having breached its disclosure requirements when publishing its consolidated financial statements for 2008 and 2009,” according to Women’s Wear Daily.
With this, the AMF chose to fine LVMH approximately $10.4 million and said that the company should have made clear its intentions to increase its stake in Hermès June 21, 2010.
LVMH is already prepared to appeal the decision.
"LVMH is surprised by the great weakness of this decision, both in legal terms and in terms of the totally erroneous analysis of the facts on which it is based," the company said in a statement.
This fine comes after Hermès filed a lawsuit against luxury conglomerate LVMH Moët Hennessy Louis Vuitton in an attempt to cancel complex derivatives that allowed Dior’s parent to build up its ownership of Hermès (see story).
Hermès spring/summer 2013 advertising campaign
That lawsuit is still yet to be determined as it seems that the two companies will be spending more time in the courtroom in the future.
The ongoing feud began when LVMH announced it had acquired a 17.1 percent stake in Hermès in October 2010.
Hermès then “ring-fenced 51 percent of the 72 percent of their stake in a holding company that cannot be sold to outsiders,” according to a previous report in The Telegraph, a British daily newspaper.
Next, the dispute escalated as the conglomerate began upping its stake in Hermès.
Hermès filed a complaint July 10 against LVMH for reasons including “insider trading, collusion and manipulating stock prices.”
LVMH then filed a complaint against Hermès for “blackmail, false accusations and unfair competition” (see story).
In April, Robert Chavez, CEO of Hermès of Paris Inc., said at the American Express Publishing Luxury Summit 2013 in Dana Point, CA, that the brand’s feud with LVMH has only empowered its seven-generation family to keep hold of their shares.
There are currently close to 200 family members behind Hermès spanning seven generations. The family is unified and has locked up more than 50 percent of its shares so that ownership is guaranteed for the next two decades (see story).
On May 31, LVMH moved French market authority Autorité des marchés financiers, or AMF, to expunge its investigation into how the group acquired a 22.6 percent stake in Hermès, which was followed by an AMF recommendation to give the conglomerate the maximum fine for failing to follow disclosure rules (see story).
Then, LVMH filed lawsuit June 4 against a manager at Hermès, which signified that the brands' reputations are at stake.
LVMH was likely targeting Hermès International CEO Patrick Thomas who said that the conglomerate fraudulently acquired shares in Hermès (see story).
Although LVMH has been fined, the dispute between the two companies is not likely to end soon since LVMH already has plans to appeal the decision and there are still other pending lawsuits.
“This dispute is far from over,” Ms. Scafidi said. “It’s to be continued.”
Erin Shea, editorial assistant on Luxury Daily, New York