Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Hermes Board Fought Off the LVMH Hostile Bid
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- Lucas: October 2010. Bernard Arnault, chairman of LVMH, announces that his group has accumulated a 17.1 percent stake in Hermes. Not through a tender offer, not through a formal approach — quietly, through equity swaps and cash-settled derivatives that didn't trigger disclosure thresholds under French law. Luna: Right — the classic 'creeping takeover' move. And the Hermes board, which was mostly family members, had no idea it was coming. Lucas: Exactly. The Dumas and Puech families together held about 73 percent of the shares, but there were hundreds of individual descendants, many with small holdings. Arnault saw a fragmentation risk. By December 2010, LVMH had pushed its stake to 22.6 percent, paying around 80 euros per share on average. Luna: And Hermes wasn't a typical target. It was the last independent mega-brand in luxury, with a market cap then around 15 billion euros. So how did the board respond? Lucas: They didn't panic. They didn't adopt a poison pill — those are rare in France and often voided by courts. Instead, they created a holding company called H51. The core family members contributed their shares — around 50.2 percent of the total — into this entity, which was structured as a 'societe en commandite par actions,' or limited partnership with shares. Luna: A structure that gives the managers — the general partners — control far beyond their economic stake. So the families retained voting power while technically still owning the shares. Lucas: Precisely. The general partner of H51 was Emile Hermes SARL, which was itself controlled by the family. So no single outside entity could buy control of the holding company. And the limited partners — the family members — couldn't sell their shares to outsiders without the general partner's consent. That locked up the majority block. Luna: LVMH sued, of course. They argued the move violated shareholder equality and was an abuse of majority power. The AMF — France's market regulator — investigated for three years. Lucas: And in 2013, the AMF backed Hermes. The ruling said H51 was a legitimate defence because it didn't strip existing shareholders of their rights — it was a voluntary pooling of shares. LVMH appealed, but the French Supreme Court upheld the decision in 2014. Hermes had effectively built a wall that Arnault couldn't breach. Luna: It's interesting that the board didn't go for a traditional defence like a staggered board or dual-class shares. They used a partnership structure, which is more common in private equity than public luxury brands. Lucas: And that's the genius of it. A staggered board can be unwound by a persistent activist. Dual-class shares can be attacked as unfair. But a limited partnership with a locked-up majority? It's almost impossible to dismantle unless the family itself fractures. H51 had a 20-year renewable term, so it wasn't a temporary fix. Luna: Now, the cost. The family sacrificed liquidity — they couldn't easily sell their shares into the market. But that was a trade-off they were willing to make for independence. Lucas: And it paid off. Hermes stock has appreciated massively since 2010 — from around 80 euros to over 2,000 euros today. The family wealth grew far more than if they'd sold out. But there's an irony here: the holding company structure also made Hermes less attractive to index funds that require free float. It's a trade-off most boards wouldn't accept. Luna: And for us, looking at this today — if this kind of strategic defence is useful to your own thinking, it's exactly the kind of story that keeps us digging into boardroom strategy. These episodes stay ad-free because listeners support the show directly. If today moved your work forward in some small way, you can find us at buy me a coffee dot com slash fexingo. No pressure, just a way to keep these conversations coming. Lucas: Absolutely. And it's not just about defending against LVMH. The Hermes case is now taught at INSEAD and HEC as a reference for how family-controlled boards can maintain independence when facing a determined hostile bidder. Luna: Let's talk about the governance after H51. The board of Hermes itself — not the holding company — remained independent. But the key decisions about M&A, capital allocation, and CEO succession effectively required the family's blessing through H51. Lucas: Right. The Hermes board had 12 members as of 2020, with four independent directors. But the family's control meant that the CEO — Axel Dumas, a sixth-generation family member — could focus on long-term brand equity rather than quarterly earnings. That's why Hermes has never done a licensing deal for ready to wear, for example, while competitors like Gucci and Louis Vuitton have. Luna: And that's a direct consequence of the defence. If LVMH had succeeded, Hermes would likely have been integrated into the group, with cost synergies and distribution rationalisation. Instead, Hermes kept its own supply chain — they still own most of their silk workshops and leather ateliers. Lucas: Which is incredibly capital-intensive. But because the board wasn't pressured by an outside controlling shareholder, they could tolerate lower margins in the short term for vertical integration. That's a strategic patience that most public companies can't afford. Luna: So what can other boards learn from this? Specifically, if you're a family-controlled company facing a potential activist or hostile bidder. Lucas: First, know your shareholder base. The Hermes board had a detailed map of who owned what, down to the individual family branches. That allowed them to move quickly when Arnault struck. Second, don't default to a us style poison pill — it might not work in your jurisdiction. Third, the best defence is structural, not reactive. H51 was set up in two months, but the idea had been discussed for years. Luna: And fourth, I'd add: be willing to accept lower liquidity. Many boards panic and try to please all shareholders. Hermes accepted that some institutional investors would sell because of the reduced float. They were willing to lose some shareholders to keep control. Lucas: That's a key point. After H51 was created, free float dropped to about 20 percent. Several index funds had to sell because they couldn't replicate the index. But the family considered that an acceptable cost. Luna: There's also a lesson in communication. The Hermes board didn't go to war in the press. They released a single statement announcing H51, then let the legal process play out. No name-calling, no open letters. Contrast that with some recent proxy fights where both sides spend millions on PR campaigns. Lucas: And that restraint actually helped them in the AMF ruling. The regulator saw it as a defensive measure, not an offensive attack on LVMH. Had the Hermes board been more combative, the outcome might have been different. Luna: Now, one thing we haven't mentioned — how did LVMH ultimately exit? They held the stake for over a decade. Lucas: In 2021, LVMH distributed its 23.2 percent stake to its own shareholders as a dividend in kind. Basically, they gave Hermes shares to LVMH shareholders. That unwound the position without a fire sale. At the time, the stake was worth about 12 billion euros. Arnault admitted it was a 'financial investment' that didn't work as a takeover, but he still made a tidy profit. Luna: So the defence worked — Hermes stayed independent, the family kept control, and LVMH eventually walked away. But the battle also forced Hermes to professionalise its governance. Before 2010, the board was quite insular. After the crisis, they added more independent directors and improved transparency. Lucas: That's the silver lining. The threat of a hostile bid often forces boards to address weaknesses they've been ignoring. Hermes emerged stronger, more disciplined, and with a clearer strategy. And the H51 structure remains in place today, still locking up 50.2 percent of the shares. Luna: I think the takeaway for any board that feels complacent about its control structure — especially family-dominated boards — is that a determined predator can appear at any time. The Hermes playbook is a great reference, but it needs to be adapted to local laws and shareholding patterns. Lucas: And it's not just for luxury brands. Any company with a valuable brand or unique assets could be a target. The question every board should ask: if someone tried to buy us tomorrow, do we have a credible defence that doesn't destroy value? Luna: All right — that's the boardroom conversation on Hermes versus LVMH. Lucas, thanks. Lucas: Thanks, Luna. Until next time.