There’s a scene in the first season of Games of Thrones where King Robert Baratheon asks Queen Cersei what is more powerful, five kingdoms or one? Cersei responds five, and Robert proves her wrong by counting 5 fingers and then collapsing his hand into one fist. One fist to rule them all.

Let’s now go into my long teased deep dive into the Hermès family and LVMH battle, initiated by the wolf in cashmere, Bernard Arnault, when he attempted a hostile takeover of the company, and was met instead with the unforgettable response by then Hermès CEO, Patrick Thomas, “If you want to seduce a beautiful woman, you don’t start by raping her from behind.”

Clash of the French Titans: The Hermès Family vs LVMH

I begin first by asking you to consider the fist that is Hermès to LVMH Group’s five fingers. Or more apt, LVMH’s 75 brands to Hermès’ one.

While Arnault once again holds the world title of being the richest man in the world, given Elon Musk’s mounting troubles over at Tesla, he does so commanding the hydra that is all 75 heads of LVMH. As incredibly impressive as their recent earning reports may be, at an astounding €86.2B, or roughly, $93.2B in 2023 revenues, this is still unevenly distributed across 75 brands, with fashion and leather goods making up about half of this amount at $45.4B. LVMH includes brands Louis Vuitton, Nicolas Ghesquière, Dior, Celine, Loewe, Loro Piana, Rimowa, Marc Jacobs and Berlutti into this category.

Hermès’ recent earnings report show 2023 revenues of €13.4B or $14.4B for the singular brand, with all sectors, or métiers, contributing to this 21% increase over 2022 at constant exchange rates. As a veteran of the watch industry, I was surprised to see watches increasing sales by a robust 23%, third after apparel at 28% and other sectors at 26%, which has now gotten my attention. Watches still only maintains 5% of total revenues, but interesting to see sales growing. Perhaps a future deep dive into Hermès horological strategy?

I digress.

As of this writing, February 12, 2024, Hermès now has a market cap of $248B, $15B above where LVMH was just five years ago at $233B – when Hermès was at a little over a third of where it stands now at $78B.  In five years’ time, Hermès has more than tripled its valuation, while LVMH.…

Of course, none of this truly matters, as LVMH’s current market cap of  $440B is still, mathematically speaking, greater than $248B and LVMH is still a wildly successful group by any measure.

And yet, no single LVMH brand can go head-to-head with Hermès. Arnault clearly realized this when he targeted the company in 2010. But as I mentioned in my Forbes deep dive back then, Arnault’s cost-cutting strategy for achieving brand profitability goes against everything that makes Hermès the quintessential luxury brand.

Let’s take a look at how the battle began.

The Hermès Family is Dragged into A Battle Royale 

In October 2010, Bertrand Puech, representing the Hermès family ownership, received a surprising call from LVMH’s Bernard Arnault, informing Puech that he’d acquired shares of Hermès — a 14.2% stake to be precise.

“Mon ami, not to worry!,” I imagine Arnault saying, according to reports, in a delicious French accent. “This is just a friendly investment to provide strategic and operational help to Hermès!”

But the Hermès family was very right to worry. After all, Arnault’s reputation preceded him. His 14.2% stake rose to 23.2% before our story ends.

The Hermès family always intended to maintain a firm grip on the company’s reins (yes, yes, an intentional pun!). Nonetheless, with some of the Hermès family members wanting to liquidate their stakes and other global expansion opportunities arising, in 1993, the company floated 25% of its voting shares onto the Parisian stock exchange. This allowed those looking to divest to do so at market rates. It’s likely the rest of the Hermès  family clan consented to this arrangement because they didn’t see a risk to their dominance or because they weren’t willing or able to purchase the shares of those wanting out. I have no conclusion either way. However, they underestimated the implications of partially opening to public investors — something Arnault clearly did not.

Starting around 2001 or 2002, LVMH discreetly acquired a 4.9 percent stake in Hermès via subsidiaries located in tax havens, deliberately staying under the 5 percent threshold that mandates disclosure, as per then-securities laws. This acquisition was vaguely documented in its financial statements under ambiguous headings, according to the French newspaper, Le Monde.

Le Monde reported that by 2006, Arnault and his team were pursuing full ownership by accumulating Hermès shares through equity swaps, a complex financial mechanism that could be settled in cash and avoid disclosure under then laws. With details obscured, these equity swaps were invisible to the public eye.

Once the Hermès family patriarch, Jean-Louis Dumas, passed away in 2010, Arnault went all-in with his plans. He insisted on receiving shares of Hermès instead of cash settlements for his derivative gains – the strategy that initially hid his ambitions. He was now Hermès’s principal shareholder without any prior disclosure of his growing stake.

The Hermès family quickly responded by filing a criminal complaint against LVMH. LVMH responded to the glove-slapping by filing a countersuit for “slander, blackmail and unfair competition.”

France hadn’t seen a battle this exciting since the Napoleonic Wars!

The Hermès Family Defensive Move

Shortly after Arnault’s call, 52 members of the Hermès family convened and unanimously decided to establish a more robust safeguard. They set up a holding company to control approximately 54.3% of Hermès’ shares. They also guaranteed the right of first purchase for any shares the Hermès family members might consider selling to prevent them from falling into the hands of a hostile bidder – which is exactly how the wolf got into the henhouse.

Ten years after this defensive measure fortified the Hermès family’s position against Arnault, the Hermès family now owns nearly 67% of the company. In a strategic move last year, the Hermès family merged eight separate family offices and investment entities from different family branches into a unified organization named Krefeld Invest, which now manages the personal assets of all members. Hermès is now virtually untouchable from any ambitions of a hostile takeover.

In the end, the cashmered wolf set his eyes on another company – Bulgari, who proved more willing to be seduced with a deal that exchanged 16.5M shares of LVMH for 152.5M Bulgari shares.  His Hermès share was forced down to less than 2%.

Arnault accepted this loss as he previously did with Gucci – but only after pocketing about $5B on his gamble and finding $10M in his couch cushions to toss at the fine levied against him for violating the public disclosure requirements.

To the Victor Goes the Spoils

Once only making up barely 10% of LVMH’s revenues, Hermès now commands a market cap of roughly 60% of LVMH’s — and its 75 brands — valuation.

Throughout my research, I continuously came across analyst insights from the peanut gallery questioning why the Hermès family just didn’t give in. It was a profitable move for Hermès shareholders, they argued. But it seems these analysts missed the point of what Hermès is as a brand, the company’s inherent DNA, which I’ve shared repeatedly over several days through the course of this deep dive.

But in case it’s not clear, let’s let former Hermès chief executive officer Patrick Thomas tell you, in a statement he made in 2010 at the opening of a new Hermès store:

“I don’t think a house like Hermès is capable of surviving in a universe controlled by money. This house has proved again and again that poetry is not incompatible with business.”

And in additional statements in an article penned by Lucia van der Post:

“Hermès does not consider itself to be a luxury-goods company. Hermès is a company of creative craftsmen. Our philosophy is focused on creativity and craftsmanship. Of course, Hermès likes to make a profit but first comes our desire to make the best object that we can and then profit is the reward for a job well done.”

And if you need more evidence, how about what Pierre-Alexis Dumas, the general artistic director of Hermès and son of Jean-Louis Dumas says in the same Van der Post article?

“We are not in the business of selling large numbers of the same product at a high price. Our business model is focused on the quality of each object, not on the quantity. The problem is that this model is not compatible with the expectations of a large financial conglomerate. Our time frame is completely different.

We are innovative artisans, constantly evolving to meet modern needs, but nevertheless we stick to the founding family’s principles of wanting to make the day-to-day objects that our customers use as beautifully and perfectly as we can. But to do this we need to do things much more slowly. We do want to be profitable, but profit is not the driving force. It is the reward.”

And, just because I can’t stop proclaiming that the pursuit of luxury is indeed a passionate endeavor, here’s one more from Pierre-Alexis, from the same article:

“There are two forms of luxury – there is one that it is hard to relate to personally, that shines on the surface, often the result of heavy marketing but where there is no light inside. True luxury comes from inside so that when we use it or live with it we find that it has light inside it, that the object has a form of soul, has a presence and that it gives us great companionship.”

I doubt the Hermès family has any regrets now post this saga. After all, if it wasn’t for Arnault’s gambit, the Hermès family wouldn’t now be Europe’s richest, and third richest in the world, ahead of the Kochs of the United States, the ruling family of Qatar, and the Al Sauds of Saudi Arabia.  The family now commands a combined fortune of $151B, up 59% from last year as Hermès International shares continue to rise without LVMH Group’s, uhm, operational and strategic support.

Stay tuned as my next deep dive will be examining the legend himself, Bernard Arnault. While I don’t necessarily agree with his business practices, I’d be a complete idiot to not respect, as the kids say, his hustle. Plus, I hear he’s sharpening his claws with an eye towards Richemont, owner of my favorite jewelry brand, Cartier.

My favorite luxury brand, Hermès, and now my favorite jewelry brand, Cartier? Monsieur Arnault, you certainly have my attention!