LVMH Increases Stake in Hermès

LVMH continues to slowly add to its ownership of Hermès International saying it now owns 21.4 percent of the Parisian luxury jewelry house, up from 20.2 percent. Company representatives made the announcement Tuesday during LVMH's half-year earnings report conference call with investors and journalists.

Bernard Arnault

In October 2010, LVMH shocked the luxury and investment industries and enraged the family that owns Hermès by announcing that it bought a 14 percent stake in the firm in a complex derivatives trade that occurred years earlier without public knowledge and resulted in the purchase of the shares at less than half of the market value. Bernard Arnault, LVMH chairman and CEO, said at the time LVMH would continue to buy more shares but did not intend to take control, to make a public offer for the company nor to seek seats on the board.

Two months later LVMH announced that it has increased its holdings on Hermès to 20.2 percent. During this time descendants of Hermès founder Thierry Hermes, who between them hold 73.4 percent of the company's capital, first demanded that LVMH sell its shares then took the unusual step of pooling their shares into a separate holding company. In January, they received the approval of the French stock market regulator to do this. Based on previous statements by the family members in published reports, the new holding company will have more than 50 percent of the capital and have first right of refusal on the remaining shares held directly by the family.

Report: Tiffany May Be Ripe for Acquisition

Tiffany & Co. flagship store

Tiffany & Co. has sparkled as the world slowly recovers from one of the worst economic downturns ever. Just today, the luxury jewelry retailer said its holiday net sales grew 11 percent, over the prior year, and that it has increased its global sales outlook to $3.1 billion, well above the $2.7 billion in sales it earned in 2009.

All this success has made the New York-based company ripe for acquisition, according to a Paris-based hedge fund manager.

Bernheim, Drefus & Co. said Tuesday that Tiffany could be the subject of a takeover bid by a luxury conglomerate in 2011, the UK jewelry trade publication Professional Jeweller reports. The most likely suitors are Richemont, Swatch Group and LVMH.

“2010 has been a splendid year for Tiffany with a surge in both sales and stock price and with a great outlook and a consolidating market there is still plenty of room for a continuing growth in the stock,” the company reportedly said.

The hedge fund also said that being a part of a conglomerate would allow Tiffany to “to increase its footprint and have a stronger position towards its stakeholders.”

Hermès Wins a Battle Against Possible LVMH Takeover

The French stock market regulator said Thursday that family members who control the majority stake of Hermès can keep control of the company by pooling their shares into a separate holding company and not have to buy outside shares, according to media reports.

This is being interpreted as a victory for the family members of the Parisian luxury house, who own more than 73 percent of company shares, as it battles against a possible takeover of its company by LVMH. The luxury goods conglomerate headed by Bernard Arnault, France’s richest man, stunned Hermès in October by declaring it had acquired 17.1 percent company through complicated stock swaps. LVMH has since increased its stake to 20.2 percent in December. LVMH has said that it would continue to buy more shares as appropriate but it did not seek control of the company and would not make a public offer.

Autorité des Marches Financiers ruled Thursday that the three branches of the family don’t have to make a full bid for the company’s stock, Bloomberg News reports. The AMF granted 31 waivers on mandatory tender offers in 2009, 22 of which were in similar cases, according to the regulator’s annual report for that year, the most recent information available.

Based on previous statements by the family members, the new holding company will have more than 50 percent of the capital and have first right of refusal on the remaining shares held directly by the family, Bloomberg News reports. The family shareholders need a mechanism to allow them to sell without LVMH swooping on the stock, a person familiar with the matter reportedly said.

The decision by AMF was opposed by Colette Neuville (pictured), head of the Association for the Defense of Minority Shareholders (Adam), a minority shareholders lobby group, who said she was shocked and would appeal against it, the Financial Times reports. The story speculates that LVMH, which refused comment, will most likely appeal the decision.

LVMH is the Best Global Luxury Brand

Despite the economic downturn, several luxury companies were able to increase the value of their brands in 2010, according to the 11th annual ranking of the "Best Global Brands," by Interbrand, a global brand consulting firm.

Among luxury brands, LVMH ranked the highest on the list at 16th, followed by Gucci (44), Hermes (69), Tiffany & Co (76), Cartier (77), Armani (95). All of these brands saw growth this year because they continued to invest “in their heritage and legendary status,” Interbrand said in a statement. “Outstanding customer service and a focus on unique in-store and online experiences allowed them to stay strong, even while consumers cut back spending.”

Burberry, which ranks 100 on the list, saw no change in its brand value this year.

For the 11th year straight, Coca-Cola retains its top spot as the number one ranked brand on the list. But the bigger story is the growth of technology brands, with IBM (2), Microsoft (3), Google (4), Intel (7), HP (10), Apple (17) and BlackBerry (54).

Apple increased brand value 37 percent “through carefully controlled messaging and an endless wave of buzz surrounding new product launches,” Interbrand said. Google saw a 36 percent increase in value over last year, “bringing the brand closer than ever to rival Microsoft.” Meanwhile, HP, despite a challenging year, “made smart additions to its product portfolio and swiftly expanded the HP brand to protect its ranking on the list. BlackBerry’s brand value grew 32 percent and it remains “the most popular smartphone for business users, despite pressure from Apple as it edges into the corporate world.”

A number of prominent brands faced extraordinary crisis in 2010 resulting in stalled growth, value loss and in the case of BP, failure to make the ranking this year. BP's environmental disaster and inability to make good on its brand promise of "Beyond Petroleum" led to it falling off of the list and helped competitor Shell emerge as an industry leader, now ranked number 81, up from number 92 in 2009. Although the Toyota (11) recall caused the brand to lose -16 percent of its brand value, its long-standing reputation for reliability, efficiency and innovation helped it weather the crisis better than expected. Goldman Sachs (37) was once the envy of Wall Street, but now faces the dichotomy of strong economic results and an angry public that will continue to lash out until the company begins to demonstrate that it is making sincere efforts to better align its ethics with its brand.

During a difficult year for the auto industry, Mercedes Benz (#12) and BMW (#15) were able to sustain and build their value through innovative design and a focus on delivering premium value vehicles with luxury features. Using customer feedback, largely drawn from YouTube, Flickr, Twitter and Facebook to launch the 2009 Fiesta, Ford (50) stands out as one of the best example of how to use social media. Award-winning products like the Q5 and rich heritage help Audi (63) lead industry growth this year with a 9% increase in its brand value.

"2010 was the beginning of a long road back towards economic recovery," said Jez Frampton, group chief executive at Interbrand. "From real-time customer feedback through social media to increased transparency about corporate citizenship, brands were faced with a profound change in the way they relate to customers and demonstrate their relevance and value. Despite this new paradigm of brand management, the advantages of building a solid brand remain the same."

In the financial sector, legacy brands Citi (40) and UBS (86) lost double-digits in brand value, while Santander (68), Barclays (74) and Credit Suisse (80) made their debut on the list for the first time. “Their ability to stay true to brand promises in unsure times, and avoidance of the subprime mortgage crisis, helped them stay the course, Interbrand said.

Interbrand publishes the ranking of the top 100 brands based by analyzing the many ways a brand touches and benefits an organization, from attracting top talent to delivering on customer expectation. Three key aspects contribute to a brand's value; the financial performance of the branded products or services, the role of a brand in the purchase-decision process and the strength of the brand to continue to secure earnings for the company.

LVMH First-Half Sales Up 16%; Net Profits Up 53%

It appears that worldwide luxury spending is making a comeback as LVMH Moët Hennessey Louis Vuitton reported revenue of €9.1 billion ($12 billion) in the first half of 2010, an increase of 16 percent. All business groups achieved double-digit organic revenue growth. The Group performed particularly well in Asia, the United States and Europe.

In addition, the world’s leading luxury products group reported that profits from recurring operations for the period increased by 33 percent to €1.8 billion and Group share of net profit increased by 53 percent to €1.05 billion ($1.37).

“The 2010 first half results, once again, demonstrate the exceptional appeal of our brands as well as the effectiveness of our strategy, as pertinent in the context of a recovery in 2010 as it was during the global economic crisis in 2009,” said Bernard Arnault, LVMH chairman and CEO. “All LVMH’s business groups contributed to this excellent half year. Operating margin has improved considerably thanks to robust revenue growth and the control over operating costs. This focus on cost control will continue into the second half of the year despite the momentum in the markets. The Group approaches the end of the year with confidence and is relying upon the creativity and quality of its products as well as the effectiveness of its teams to pursue further market share gains in its historical markets as well as in high potential emerging markets.”

The Watches & Jewelry business group registered revenue growth of 28 percent and a 145 percent increase in profit from recurring operations, the company said. The increase in purchases by retailers, coupled with the rise in consumer demand, contributed to the strong performance. TAG Heuer celebrated its 150th anniversary and grew strongly in China and the United States. Hublot’s King Power line was well received and the recent integration of the "Confrérie Horlogère" team has strengthened the brand’s expertise. Zenith benefited from the success of its new models. Fred, Chaumet and De Beers enjoyed momentum in their networks of stores. The launch of the Josephine collection was one of the highlights of the period for Chaumet.

Following considerable destocking in 2009, the Wines & Spirits business group recorded revenue growth of 21 percent and an increase of 35 percent in profit from recurring operations, the company said. Champagne sales saw a significant rebound during the period thanks to improvements at prestige brands, which had been adversely affected in 2009. In the Cognac business, Hennessy experienced strong momentum in its key markets, notably China and the United States. All qualities of cognac achieved strong growth.


The Fashion & Leather Goods business group recorded revenue growth of 18 percent in the first half of 2010. Profit from recurring operations increased by 28 percent to €1.2 billion ($1.5). Louis Vuitton registered very strong revenue growth. Asian and European markets confirmed their growth momentum and the United States, which showed good resilience in 2009, continued to improve during the period. Fendi, Donna Karan and the other fashion brands had a good start to the year.

The Perfumes & Cosmetics business group registered revenue growth of 12 percent, and a 50 percent increase in profit from recurring operations, the company said. LVMH’s brands benefited from strong growth in Asian markets and a return of demand in Europe as well as in the United States. By accelerating the development of its star lines, Christian Dior achieved strong growth and gained market share. Beyond the global success of J’Adore, the first half was notable for the progress of Miss Dior Chérie and Eau Sauvage, the leading French male fragrance. In make-up, the new foundation, Diorskin Nude, and the lipstick, Rouge Dior were successful. Guerlain benefited from the 2009 launch of its Idylle perfume and from the growth of Orchidée Impériale. The ongoing success of Ange ou Démon and its major classics were the key highlights for Parfums Givenchy. Benefit and Make Up For Ever enjoyed strong growth.

The Selective Distribution business group saw a 14 percent increase in revenue and recorded growth of 36 percent in profit from recurring operations. DFS benefited from the growth in Asian tourism and saw a considerable increase in revenue. The renovation of the Hong Kong’s Sun Plaza Galleria continued. Macao has seen strong growth and will benefit in the second half of the year from the full opening of the City of Dreams. Sephora performed exceptionally well and strengthened its position in all of its markets. It sustained its growth momentum on a comparable store basis and online sales have continued to grow rapidly. The brand expanded its presence in all markets, and is ready to develop in South America through the acquisition of Sack’s, the leading Brazilian online specialty beauty retailer.