The luxury goods group LVMH had recently bought a 17 percent stake in Hermes. Speculation on this investment by LVMH in Hermes going against stock market rules is rife.
LVHM’s share in Hermes is now being investigated by French regulator AMF to see if any stock market regulations have been broken. LVMH had earlier bought shares in Hermes in 2001 but it had, according to stock market disclosure regulations, remained below five percent. During the recent financial crisis it invested in Hermes via derivatives. This investment was done through equity swaps that pay out in cash and not shares. Pierre Gode, vice-president of LVMH, said that the company had not had any intention of converting theses swaps into shares further on. In September 2010, when the term for these swaps had ended, if LVMH had enchased the swaps it would have been paid about 1 billion Euros and banks would have sold their shares in Hermes on the open markets. However LNMH did not want theses hares to fall into rival hands.
The family that owns Hermes has already met to decide future action considering the current situation. It has also hired the Ginestie law firm to advise it on legalities. Here’s hoping they sort this one out.