Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Hermes Family Held Off LVMH
Transcript
- Lucas: If you run a family business for 170 years and you've never taken a dime from outside investors, you probably think you're safe from hostile takeovers. Hermès thought that. Luna: And then Bernard Arnault showed up. Lucas: Exactly. In October 2010, LVMH announced it had quietly accumulated a 23 percent stake in Hermès. No warning. No tender offer. They just bought shares through equity swaps that didn't require disclosure under French law at the time. Luna: And Hermès had about sixty family shareholders at that point, right? Spread across multiple branches. Lucas: More than sixty. The family held roughly 70 percent of the company collectively, but no single branch had a majority. That's the vulnerability — when you have dozens of cousins, some of them might get tempted by a premium offer. LVMH was betting they could pick off a few branches and eventually force a change of control. Luna: So what did the family do? Lucas: They did something pretty creative. Within two months of LVMH's disclosure, the family gathered and announced they would pool their shares into a holding company called H51. The holding company would control about 50.2 percent of Hermès shares, and each family member who joined agreed not to sell their shares for 20 years. Luna: Twenty years. That's a long lock-up. Lucas: It was a binding commitment. They basically said to LVMH: 'You can't buy control because no cousin can sell you their shares for two decades.' And crucially, they didn't issue new shares or dilute LVMH's stake. They just concentrated the family's existing ownership into a single block that couldn't be broken up. Luna: Did all the family members join? Lucas: Not all, but enough. Around 52 family members representing about 60 percent of the family's total stake signed on. The ones who didn't join kept their shares directly, but with the H51 block holding a majority, LVMH was blocked from ever getting board control. Luna: I remember reading that LVMH sued, claiming Hermès had manipulated the market. Lucas: They did. LVMH challenged the structure in court and also filed a complaint with the French stock market regulator, the AMF. The AMF eventually fined LVMH 8 million euros for failing to disclose its stake-building properly. But the H51 holding company was ruled legal. French law allows shareholders to form voting pacts and lock-up agreements as long as they don't constitute a covert takeover bid. Luna: So the family won. But did it come at a cost? Lucas: It created some internal tension. Some family members who didn't join the pact felt left out. Others worried that locking up shares for 20 years limited their personal financial flexibility. But the vast majority saw it as protecting the company's independence and long-term strategy. Luna: And the company's performance — did it suffer during this period? Lucas: Actually, no. From 2010 to 2020, Hermès revenue roughly doubled, and the stock price increased more than tenfold. The family's decision to prioritize control over liquidity arguably created enormous value. Because they weren't worried about quarterly earnings pressure, they could keep making decisions that paid off over years. Luna: It's interesting that the key to their defense wasn't a financial weapon — it was the family council. A governance structure they'd already built. Lucas: That's the part people miss. Hermès had a family council and a family charter long before LVMH showed up. They had been meeting annually for decades, discussing succession, and setting guidelines for share ownership. When the attack came, they didn't have to scramble to organize. They already had a process for making collective decisions. The H51 holding company was essentially an escalation of something they'd been doing informally. Luna: And the broader lesson for family businesses facing a potential takeover? Lucas: Build your governance before you need it. Have a family council, have a clear ownership structure, and set expectations about liquidity. If you wait until someone is circling, it's too late. Hermès had 170 years of practice. But you don't need 170 years. You just need a plan. Luna: That's a good note to end on. If today's episode gave you a useful framework for thinking about family governance or just a good story about how a 180-year-old brand outfoxed one of the most aggressive acquirers in the world, that's exactly the kind of conversation we try to have here. And the fact that this show stays ad-free is because listeners choose to support it — at buy me a coffee dot com slash fexingo. Simple as that. Lucas: Yeah. And the Hermès story is a reminder that the best defense isn't always a legal trick — it's a family that actually knows how to talk to each other. Luna: And maybe a 20-year lock-up helps too. Lucas: That too. Next time we'll look at a family that didn't fight off an outsider — they brought one in and rewrote the rules of succession. See you then.