Luxury Takeover?

2011 MBA

The players

LVMH Moet Hennessy Louis Vuitton SA Mr. Bernard Arnault, Chairman & CEO

- 2010 Revenues: 20.32 billion € (+19%)

- 2010 Net Profit: 3.03 billion € (+73%)

- Dec 31st, 2010 Market Capitalization: 60.33 billion €

Hermès International SCA

Mr. Patrick Thomas, CEO

2009 Revenues: 1.91 billion € (+25% expected in 2010)

2009 Net Income: 288.8 million €

#Shares Outstanding : 105.57 million

Shares traded above 100€ in 2010, +88% in 4th quarter (closing 176.20€, 31st Dec)

October 2010: LVMH declares..

“……to be a long-term shareholder and not taking control of Hermes nor seek

board representation.”

“ We are peaceful investor, which doesn’t mean we will be passive…we can team up

to bring benefits”

• LVMH already had a long-standing direct stake in Hermès amounting to 4.92% (below 5% disclosure threshold required by AMF – Autorité Marchés Financiers)

• On October 2010 LVMH closed derivative transactions for 12.85m Hermès shares, that brought his stake in Hermès to 17.1% (10.7% of the voting rights), paying only an average price of 80.50€ per share

Hermès reaction

• In France, must declare when a company reaches 5%, 10%, 15% threshold in entering the capital of another company…Why did LVMH not declare?

• Meeting among Hermès family members, giving Management the authority to investigate ways to prevent LVMH from increasing the stake

• Call from Bertrand Puech (Chairman and member of Hermes) to Mr. Arnault – “Withdraw from Hermès!”

• Hermès - Talks to bankers and lawyers to prevent invasion and expansion of LVMH

Why did LVMH not declare his stake in Hermès?

Mr. Arnault meets Bankers

Société Générale, Crédit Agricole, Natixis

2007-2008

Equity Swaps is the answer…

• Equity swaps enable an investor to bet on the value of a stock without actually owning the shares

• An investor typically enters such a swap arrangement with a bank in return for a fee

• To hedge its position, the bank will often buy and hold the underlying stock

• Because these options were settled in cash, under AMF rules, they do not have to be declared

• Equity Swap transactions will be registered to five LVMH subsidiaries based in Panama and Luxemburg

Hermès proposal for action…

Mr. Thomas meets the Shareholders December 2010

• Hermès family controls 73% of the company and is determined to remain independent

• Reinforce the defense through creation of a separate family Holding Company comprising more than 50% of Hermès International

• The Holding Company would oblige the family to make an offer for the whole company unless exempted by AMF

• Right of refusal on share sales by family members

Hermès debates

DECEMBER 2010

•Shares fell 1.9% after your announcement •LVMH’s swoop has already cut the free float from about 25% to less than 10%, which implies its share price movements will be volatile

Liquidity in the stock has already been reduced following LVMH’s stake-building and would be further reduced. Were the family to agree to sell to one another!?

Hermes put its company into the stock market and knows the rules of the game! It is not up to them to choose their shareholders!

I should get a liquidity premium to accept that! Liquidity! Liquidity, Liquidity!!!

Scary Facts

…Shareholder

Hermès adds tactic against LVMH…

Mr. Thomas January 2011

Hermès vs. LVMH

• Hermès bolsters LVMH defenses:

- Go ahead by AMF to create family holding without having to buy-out minority investors

• Minority shareholders upset – appealed against it

• “Hermès management members have said year after year that

no single shareholder controlled the company”

• “Cannot say they controlled the capital”

• Hermès proposes an interim dividend of 1€/share, to be paid out of net cash of 830 million € (31st Dec, 2010)

• Will Hermès be able to completely control the intrusion?

• Will it be able to resolve the issue with minority shareholders?