How LVMH acquired 17.1% shareholding in Hermès

if you haven't been living under a rock for the past week, you would have heard that lvmh, parent company of louis vuitton, acquired 17.1% shareholding of fellow french luxury goods makers, hermès. i wanted to blog about it at the first instance, but many questions were unanswered until today, when lvmh officially filed a report on how the shareholdings built up. some of the burning questions i had:

- how did lvmh acquire the shares at about €80 whereas it is trading around €160 now?
- how did lvmh build up such a significant shareholding without anyone knowing?

i hope the below will help to answer the above questions. i try to make it as simple and interesting as possible. i find the story so fascinating as it unravels. we talk about heritage and buying into a brand, i think it's nice to have a little more understanding into their activities.

• example in fictional prices:

i drew the above diagram at lunchtime yesterday. yes, some of my colleagues read hello magazine, i draw pictures at lunch. using the above simple example, it should help to illustrate how lvmh managed to buy shares at hermès for cheaper than current market value.

back in 2008, lvmh entered into a contract with bank A which will last/mature for three years to 2011. lvmh agrees to pay $75 (based on price of 1 hermès share in 2008) plus $5 as fees to the bank. when the contract matures in 2011, the bank will pay lvmh $75 plus the difference in share price between 2008 and 2011. if share price in 2011 is $200, the bank will pay lvmh $75 + $125 profit. money will only exchange hands in 2011, and up to this point no one bought any hermès shares, they are merely using hermès as a derivative.

from the bank's perspective, they will lose out if the price of hermès shares rise to $200 in 2011, as they will need to fork out the extra $125. bank A therefore buys 1 share in hermès back in 2008 for $75 (using the $75 that lvmh will pay in 2011, so no net outlay for the bank). holding this share since 2008, the bank will then pass on any movement in shareprice to lvmh in 2011. the bank therefore is in a riskless position. how do they make money? bank A earns the $5 fee which was agreed.


FRANCOIS GUILLOT/AFP/Getty Images, hermès spring summer 2011

however in october 2010, lvmh and bank A amended the contract. instead of receiving $200 in 2011, which let's assume is the market value of 1 hermès share, the bank will give lvmh the 1 hermès share instead. in monetary terms, it is the same as that share is worth $200. but the agreement was for lvmh to pay $80 in 2011, therefore lvmh managed to buy 1 hermès share in 2011 for $80. the downside for lvmh would be if shares in hermès plummets in 2011.

now just imagine the agreement back in 2008, but on a much grander scale.

and talk about surprising your competitor, hermès was informed only an hour before lvmh issued a public press release that they now own 17.1% of their company. how did lvmh or bank A build up such a big shareholding without anyone knowing, since regulations require one to disclose if you have 5% or more shareholding at anytime. surely bank A needs to disclose this information when they bought hermès shares in 2008?


Pascal Le Segretain/Getty Images

the clever or crafty thing is, in 2008 lvmh entered into similar contracts with three different banks, each with contract values just slightly below 5% of hermès shareholdings. therefore nobody needs to disclose anything, and no one breaks the law. assuming each contract is worth about 4.9% of hermès shareholdings, that only brings lvmh up to 14.7%. where's the other bit to bring them up to 17.1%? it was suggested that lvmh already owns shares in hermès but below the 5% reporting threshold.

analysts call this a "stealth build-up", normally a method associated with aggressive takeovers. porsche's recent takeover of volkswagen was of a similar method.

+

• in very high level summary

in 2008 lvmh entered into contracts to receive cash/shares three years later but fixed at 2008 prices. there were contracts with three banks, each with contract values just below 5% of hermès shareholdings so nothing needs to be disclosed, and hermès kept in the dark.

+

• what now?

assuming lvmh did not amend the contracts and they agree to take cash settlement from bank A in 2011, lvmh will not need to pay anything but receive $125 in cash (less $5 bank fee initially agreed). to now receive hermès shares, lvmh will need to pay $80 to bank A.

in real life, lvmh needs to pay €1.45 billion for hermès shares. does lvmh really have that much cash washing around? analysts suggested that lvmh might sell their champagne division, the "moet-hennesy" side of the business. the champagne division wasn't doing well in recent years (recession, less people popping champagne or drinking fine wine) so it could be that lvmh wanted to get rid of this division. with the markets picking up now, they should be able to fetch a better price, and the sale proceeds will in turn be used to acquire shares in hermès.


FRANCOIS GUILLOT/AFP/Getty Images, hermès spring summer 2011

will lvmh be able to acquire more than 50% shares in hermès? 70% of hermès shares are privately held (ie not traded in public), and it was suggested that over 40 family members own these 70% shareholdings. private deals will need to be negotiated if lvmh wanted to buy more shares from some of the 40 hermès/duma family members. how united is this family?

and are there anymore contracts we don't know about with other banks for cash settlements in future but could potentially be exchanged for more shares instead?



Francois Durand/Getty Images, hermès fall winter 2010

hope you are still awake at this point. i find this deal to be totally fascinating, this could be the high fashion drama of our generation. the lvmh/ppr/gucci saga in the 90s was admittedly a little before my time. it's easy for me to comment on the outside, but there must be tensions and tantrums and turmoils behind their closed doors.

i don't think we've heard the last about this story. is someone already writing a script? this is going to be a summer blockbuster.





+

Commune de Paris Silk Scarf

pierre with commune de paris silk scarf
23 october 2010 / 14:02hrs




+

Barnabé Hardy Origami Bomber Jacket

one of the "must do" for me when i was in paris last weekend, was to try on the barnabé hardy jackets. i've long been a fan of his work since his balenciaga days, so it was the utmost pleasure to try on the exquisite napa leather origami jacket. having examined it closely, i can say the worksmanship is really good, and it fits very comfortably. i didn't feel like taking it off really, it's totally my kind of style, 00o00h i heart.

i tried size 48 above, which is true to size. if you are keen, the jacket is available here.

and mr barnabé hardy himself in the same jacket. i feel that much closer to him now! and oh, if you're new here, click here to read my interview with barnabé hardy. it's very good if i may say so heh.

+
+

My new shoes: Missoni x Converse sneakers Fall Winter 2010

whilst in paris last weekend, i also picked up the new sneakers from missoni x converse fall winter 2010. i picked up a pair from their first collaboration from the spring summer 2010 series, and really really like it. there were 2 pairs from this current collection, both in black and white, one in stripes and the other in their signature zig-zag weave.

missoni pushed the boat further this time and added a few nice details to the otherwise classic converse shoes. the tongue, lining and back of the shoes now featured leather detailing in missoni's signature terracota brown. the toe cap is also covered in black leather. they also provided 2 pairs of laces in black and white for you to customise your own look.

left to right: the fall winter 2010 sneakers, the spring summer 2010 sneakers, the classic houndstooth sneakers. i really love these shoes, it's comfy and stylish. i hope the collaboration will continue into 2011. not heard any news, but really hope so.

missoni x converse fall winter 2010

not seen any online stores stocking these shoes, if you are keen i suggest you run (not walk) to your nearest missoni store now.

+

Balmain Homme Fall Winter 2010 "Teddy" Jacket

probably not a good picture, but nevermind. i admit i was very smitten by the gold buttoned peacoat in the same collection (on wishlist on the right...), but it was actually longer than what i expected, and i have a rather similar coat anyway. i love their take on the varsity-style jacket, i see this as a classic, and most probably getting better with age.

here's to a good investment piece.

balmain fall winter 2010 /ph: balmain | coute que coute







+

Opening Ceremony Desert Boots | Pierre Hardy Sneakers

it was a fun filled weekend in paris. besides dabbling in a spot of retail therapy, i also visited the showroom of studiohomme.com. describing the experience as a kid in a candy store is very much of an understatement. i took quite a few pics, but first up let's look at a few of my favourite shoes.

the opening ceremony desert boots in green tweed was one of my favourites. i love shoes with slim and streamlined soles, it gives a very sleek and neat appearance. love everything about it, including the surprisingly "not-too-expensive" price tag.

the opening ceremony desert boots also came in brown tweed, which i equally adore.

i love my sneakers, and this pair of pierre hardy "cube" canvas sneakers is an enduring classic.

there were also two other pairs of shoes that i really really like. they are so new, they've not made it to the online store yet. i'll do a feature when i see them up on site, but trust me those will not last long...



+

44 Rue François 1er

i spent the last weekend in paris, and one of the things on my agenda was to visit balmain's store at 44 rue françois 1er. there was this piece that i wanted but they don't have it in london so the special visit. yes, i did get the piece i wanted. that aside, i wondered how the parisian flagship would look like. based on what i've seen on their womenswear shows, i expected a store with really dark wooden interiors, loud music and dim mood lighting. i couldn't be anymore wrong than that: the store was actually really light and airy, very old parisian chic but with modern touches here and there. i was really pleasantly surprised.

but amazing decor aside, i feel something is lacking. the lady that attended to me was very sweet, but the overall feeling from everyone was very lukewarm. considering we were in there for about a good hour or so, an offering of an aperitif would have been personable. it's the little little things and gestures that puts the fun back into brick and mortar shopping. ok maybe it was me, it was drizzling outside and i wasn't exactly dressed to the nines, and i was a little under the weather and my nose resembling a running tap.

but they offered to send my jacket to my hotel, which was a nice gesture. experiences aside, here are a few pics from joseph dirand, architect of the balmain store on 44 rue françois 1er.

many thanks to arnaud for informing me about mr dirand and his work for the balmain store. a few more pics, and more from his portfolio at http://www.josephdirand.com/

pics credit: joseph dirand

+

Last Weekend

no it isn't the gold buttoned peacoat...


+

Gattaca

richard and cillian's latest post on "favourite moments in film" brought me back to a movie i loved so dearly. gattaca, along with great expectations, a single man and several of wong kar-wai's movies rank highly on my favourite movies list. i used to rave so much about gattaca to my friends. shot more than 10years ago, the movie still looks and feel amazingly current. beautiful cinematography, and i believed the costumes were all designed by giorgio armani too.

i am going to watch it again next weekend. i hope you will consider this massively underrated film for your next night in.

+

Szymon Zürn Fall Winter 2010

it seems a little strange and a little daring to go against the fashion grain by launching your new fall winter collection in november, right when most retailers are going through mid season reductions now. but maybe i'm not the only one to find it odd that i have to buy my winter clothing in the deep of the august summer when most fall winter collections are in store. perhaps being niche and independent does have your advantage. sweden based designer szymon zürn's fall winter 2010 collection will officially launch on his website/store on 1st november. right when the weather here gets chilly, and i'm thinking about winter coats...

the piece that really got my attention, is the beautiful 'moonlight' shearling jacket. yes, it's that much of a statement/key piece from the collection that is deserves a name, 'moonlight'. the shearling jacket is constructed from soft lambskin, and it's an excellent example that shearling doesn't have to mean 'aviator-style'. i mentioned in an earlier post that a shearling jacket is not just for a season, it's for life, i guess this beautiful jacket pretty much sums it all.

the good news (or perhaps bad, if you missed the boat) is, there are only 6 pieces made. the pre-order is limited between 25 oct 2010 to 12 nov 2010. prices upon application, but i would urge you to contact them for more information.

i think it's amazing and commendable that being a small and niche retailer they have an online store too. visit http://www.szymonzurn.com/ for more info.



+

Out and about...

excuse the rather self indulgent post, it's been a long while since i last went shopping. i asked myself the same question: is that possible? yes, i've been shopping but it's mostly online shopping. but nothing beats the excitement of piling up the clothes and trying to my hearts content in the fitting rooms.

i dropped by zara to have a little look see last weekend. tried on the above shearling jacket, which is quite the "on trend" piece of this season. i wondered if i can still call it shearling considering the jacket is made from 100% synthetic materials. in fact, bits of fiber fell off when i handled the jacket. i like the jacket, it's comfortable, it fitted well, but an aviator/shearling jacket is for life, not just for the season. it's all or nothing, so i placed this back onto the rails. but quite a nice piece for £79 if i may say.

i love my chunky toasty knits. a little 'christmassy' and a little tight for my liking. a fun piece, but i know i won't wear it so this went back to the shelves too.

what i did get however, is the nylon puffa vest with embroidery details. i'm not usually a big fan of vests nor puffa, but this piece somehow caught my eye the minute i walked into the shop.

the puffa vest comes with a detachable hood which also has the nice knitted details. i thought it's a pretty nice piece, and at £39 is quite no frills. except that the temperature suddenly nose dived this week.

out and about in my missoni knit, balenciaga trousers, christian louboutin sneakers and smelling of 'balenciaga paris' x 'acqua di parma'.

+

Hidetoshi Nakata [中田英寿] at 3.1 Phillip Lim show in Beijing in 3.1 Phillip Lim

credits: sina, gq/firstview

there's good clothes happening to bad people, and bad clothes happening to good people. can we have good clothes not happening to good people? to celebrate the 5th anniversary of the brand, phillip lim staged a special show in beijing this week. but whoever decided to style nakata head to toe in the fall winter 2010 runway look should be shot. nakata is an athelete, a ck underwear model, a clotheshorse, this really shouldn't happen. unfortunately he is screaming victim than trendsetter to me.

i still maintain my rule, that 99% of the male population should not attempt to do the belted look or the trousers in high boots look. and even more so, doing it together in one look.

credit: sina, tungstar

let's just remember this look from the waist up then.





+

In Conversation With Mr Hare

a month ago i received a call from studiohomme.com, asking if i would be interested to interview mr hare for their october editorial. it wasn't just an email questions and answers session, but an actual proper sit down coffee iphone voice recorder kind of interview. it would have been difficult with someone else, but having met mr hare a few times before, he made this non-professional journalist at ease.

i was listening to the taped recordings on my flight to singapore last month, furiously scribbling notes thousands of feet up in the air. there was so much i wanted to share, but it had to be trimmed down for studiohomme's editorial. so here's the interview in it's entirety, ok it's a little bit lengthy but we talked about the difficulties most start-ups faced, about his business model, about balenciaga bags and of course about his shoes.

so grab a cup of coffee, and i hope you will enjoy the below transcript of our conversation.

mr hare, spitalfields market / september 2010

Can you tell me about what you did before launching Mr Hare? I remembered you mentioned you were previously at J Lindeberg.

Yes, I was previously Head of marketing at J Lindeberg, overseeing the sales and marketing functions. The company then got bought out by a Swedish Investment Company, and they moved the office back to Stockholm. After a year of frustration trying to find another job, I decided I should do something else instead.

I think that’ s how most entrepreneurs started out isn’t it, you get bored, frustrated and that drives you to think creatively and see gaps in the market. Did it scare you at all, starting your own business, I guess without much previous experience?

Besides J Lindeberg, this is the second proper job after I left school. Previously I owned a surf shop and fashion boutique in London’s Nottinghill about 10 years ago.

Really? What did you sell?

For menswear, we sold Dior, Raf Simons, Martin Margiela…

10 years ago?!

That’ s crazy! How does that compare to having your own company now?

I find having a job to be scarier, you could lose your job any minute. When I was at J Lindeberg, we were doing everything right, making more money for the company then we got bought out and lost our jobs, where’ s the security in that?

But starting your company in 2008 seems like a very risky thing to do, considering the economic situation at that time.

The economic crisis started just after I decided to set up the company. I had already set up the business plan which involved a bit of advertising, a couple of trade shows. My costs for doing that was about £30 - £40 thousand pounds. Then with everything that happened, I wanted to cut out as much costs as possible, and I got it down from £35 to £5 thousand. The first 6 months was really based on £5k expenditure.

So did you borrow from the bank or was it all your money?

It was just crazy to borrow £5k if I can earn and pay it back at the end of the year. Anyway I went to the bank with my business plan, they can see I have sales orders coming in, it’s a no brainer but they wouldn’t loan me the initial amount I wanted. That was the economic situation at that time. I had my first stack of orders, I knew I have enough to go into production, so I spent the £5k on my Amex.

That sounds expensive, with the interest rates. Did you manage to break even on your first collection?

We actually made a profit in the first year.

I am coming into business with you!

(Haha) It was miniscule. I’m trying to build the company in such a rate that it is self sustaining, so I don’t need to get any investors.

Was it a big challenge to go from Marketing to shoes designing?

When I was at J Lindeberg, I actually started their shoe range. I brought in some shoe production people to make the range for us, did the research into design, which is similar to what I am doing now. I do more design now, but I’ve done every other aspect of the job before so it wasn’t a major stretch for me.

Tell me about your shoes and the process of making them. I find the first collection to be very romantic, nothing like that in the market. You’ve obviously seen a gap there.

The most important thing to me when it comes to shoes is the shape. Whenever I look at a pair of shoes and something’s wrong, it’s always the shape. The economics of making shoes is that when you start you have to invest loads of money because every time you make a new last, you have to make one for every single size. It ends up costing a few thousands pounds. I am interested in pushing men’ s shoe shapes. I love Jermyn Street shoes, but they don’ t change very much, you have that quality but they always make the same shoes. With fashion companies the quality goes out of the window in place of interesting shapes and details. I want to marry the two and make traditional shoes but with exciting last shapes.

(left) jay jopling in "orwell stingray", (right) jefferson hack in "jerry lee" / getty images

I remembered I excitedly sent you pictures of Jefferson Hack and Jay Jopling in Mr Hare shoes. They are both very stylish and influential individuals. How do you feel about celebrity endorsements or your shoes appearing in street style blogs?

I was very happy to see Jefferson and Jay in my shoes, more so because they went out and bought the shoes. I did not send them any shoes and I rarely do gifting. I don’t like the idea of someone buying my shoes because they’ve seen it on some famous people. I want people to buy it because they like the construction, the fit, the feel, the story behind it. It was nice seeing them in my shoes, means they like it enough to buy it.

Was it scary for you, selling the shoes online? Can you tell me what percentage of your turnover is attributed to online sales?

It absolutely scares me, especially at the beginning. The prices are high and it’s a relatively new product, but the first season sold out pretty fast. I think once you have confidence in the product, once you know the sizes, it’s pretty straightforward. I am buying more and more stuff online. These days, shopping on foot is just tiring. Online sales account for about 30% at the moment, and growing.

Your shoes are now available at some of the best stores in London: Harrods, Selfridges, Liberty, Dover Street Market. In Paris, Colette and Studiohomme.com. Are you worried about over expanding or overstretching yourself considering this is only your third collection?

No not at all. My strategy has always been to sell your products in the best shops in any country. We know when to stop, you’ ll never see our brand turning up in a mid level shop. We were in all these best shops because we sell enough into those stores. They come to us with the demand and we deliver. The minute they can’ t sell those shoes they will stop buying. At any one time, each store will stock a few styles and sizes, so not much overlapping.

The last time we met, you mentioned that you’ re introducing some accessories for your Fall Winter 2010 collection. Any more news on that?

That was the initial plan. I had some samples made, bags and belts, but it did not turn out to be what I envisaged. Rather than pushing it out, I want to take the time to get it right. I held it back for one season to refine it.

Collaborations are all the rage these days, are you keen to do one?

I read somewhere, that someone came up to this very famous women’ s shoe designer at a party and commented that his shoes were very uncomfortable. I would’ve died on the spot if it was me! Have anyone came up to you to give you feedback?

All the time! Fortunately, the comments were very positive. With women’ s shoes it’ s an entirely different game. But so far it’ s all been good.

Well I thought they fit really well.

(Haha) Thank you, that’ s what I like to hear!



mr hare "king tubby", spitalfields market / september 2010




hope you enjoyed the transcript. mr hare shoes are available from studiohomme.com. click here to find out more.








+

J.Lindeberg Biannual Book - Fall Winter 2010

j.lindeberg very kindly sent over their fall winter 2010 large format biannual. this is the third copy i've received (since fall winter 2009), and honestly this is my favourite. there's a lot of effort being put into this publication. it's not just a regular fall winter catalogue / lookbook, but really a documentary of sorts, a photographic journey into what inspired the swedish fashion house. there are interviews with artistes, wonderful editorials and styling shoots.

below are a few of my favourite pages. this large format book is again not for sale, but it's entirety is available for viewing here. i would highly recommend you grab a cup of your favourite coffee, sit back flip the e-pages and enjoy the wonder 'documentary and a dream'.

one of my favourite editorial, is the photographic journey to komatsu seiren [小松精練株式会社] in japan with creative director pierangelo d'agostin. j.lindeberg sourced their fabrics from komatsu, and the team visited the factory to understand their tradition, exploring the past. it's something i've always wanted to do, to visit a factory to see how everything began, retracing the steps. i find the journey from factory to shopfloor to be equally exciting as the finished product.

of course there's also the amazing shots of j.lindeberg's fall winter 2010 collection. i love the casting, i think it's absolutely spot on. the model conveys the mood of the collection really well, and he's a believable choice. lately we've seen diversity in womenwear campaigns and shows, i think it is time men, not boys, return to the centrefold.

click here to access the digital version of j.lindeberg's fall winter 2010 biannual.

click here for j.lindeberg's fall winter 2010 collection.



+