Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Hermes Family Fended Off LVMH
Transcript
- Lucas: So in 2010, Bernard Arnault, chairman of LVMH, quietly revealed that his conglomerate had accumulated a 17 percent stake in Hermès. He didn't do it through open market purchases — he used equity swaps, a financial instrument that lets you build a position without disclosing it until you choose to. Luna: Right — and that caught the Hermès family completely off guard. They had no idea LVMH was circling. Lucas: Exactly. And the family's reaction was swift and radical. Within months, they announced they were pooling their shares — over 50 percent of the company — into a holding company called H51. The shares in that entity are subject to a 20-year lock-up, meaning no one can sell. And they structured it so that the holding company can't be taken over by an outsider. Luna: That's essentially a fortress. They said, 'You can buy the stock, but you cannot buy control.' Lucas: And the market reaction tells you how unusual this is. Hermès stock actually rose after the announcement because investors understood that management — the family — had the long-term interest of the brand at heart. LVMH, meanwhile, filed a complaint with the French financial regulator, the AMF, arguing that the family had not disclosed the holding company plan properly. Luna: The AMF ended up fining Hermès 250,000 euros, which is basically pocket change for them. But the bigger story is that LVMH eventually backed down and sold its stake in 2014, after a court ruling. Lucas: That's the part I find most fascinating. LVMH didn't just lose — they got forced to unwind the entire position. The AMF investigated the equity swaps and ruled that LVMH had effectively acquired shares without proper disclosure, and they fined LVMH 8 million euros. Bernard Arnault personally called the whole thing a 'failure of communication,' but the subtext is: the family outmaneuvered one of the most aggressive acquirers in luxury goods. Luna: And Hermès is a sixth-generation family business. It was founded in 1837 as a harness-making workshop. So when Arnault made his move, he was up against a family that had already survived two world wars, the Great Depression, and the rise of mass production. Lucas: That's the key. The family had a deeply ingrained culture of independence. They'd never taken outside capital. They'd never diluted control. When the threat came, they had a shared identity strong enough to act in unison. Not every family business can do that — look at what happened with Gucci or Bottega Veneta, both of which eventually sold to conglomerates. Luna: But Hermès is also a specific case because the family members were numerous — about 60 descendants held shares at the time. Getting them all to agree to lock up their wealth for 20 years is a huge coordination feat. Lucas: It is. And the way they did it was through a family pact. They created a governance structure where the holding company's board is controlled by family members, and any sale of shares to a non-family member is effectively blocked. The lock-up period runs until 2031, but it's renewable. So the defense mechanism is built to be permanent. Luna: What I find interesting is that this structure also preserves the family's influence over management without them having to run the company day-to-day. The CEO of Hermès today is Axel Dumas, a sixth-generation family member. But the chairman is a non-family executive, Henri-Louis Bauer. It's a hybrid model. Lucas: Right. And that hybrid model is actually quite common in successful family businesses — the family retains control through a holding company, but they bring in professional management for operations. The Beretta family does something similar. What's unusual about Hermès is the sheer size of the lock-up and the fact that it was created defensively, under duress. Luna: So let's talk about the lessons for other family businesses. If you're a founder or a second-generation owner, what can you take from this story? Lucas: First, don't wait for a predator. The Hermès family built their defense after LVMH struck. But if you already have a unified ownership structure — a family holding company, a shareholders' agreement with pre-emptive rights — you're less vulnerable. Second, think about liquidity. The Hermès family sacrificed near-term liquidity for long-term control. That's a trade-off not every family is willing to make. Luna: And it can create tension. Some family members might want to cash out, especially if they see a premium offer. In the Hermès case, the premium LVMH offered was huge — at one point, Hermès shares were trading at 60 times earnings. But the family held. Lucas: They held because they believed in the brand's future more than they valued a one-time payout. And that belief is grounded in the company's performance. Hermès has consistently grown revenue at a compound annual growth rate of about 10 to 12 percent over the past decade, with operating margins above 30 percent — among the highest in luxury. So the family's conviction was backed by numbers. Luna: It's also worth noting that the family's decision to lock up shares was legal but aggressive. Some corporate governance experts argue that it entrenches management and reduces accountability to minority shareholders. There's a real debate there. Lucas: That's a fair point. The holding company structure means that even if a majority of public shareholders wanted a different strategy — say, selling to LVMH — they couldn't force it. The family holds veto power through the holding company. So it's a form of control that prioritizes family vision over shareholder democracy. Luna: And yet the stock has performed incredibly well. Since the LVMH stake was unwound in 2014, Hermès shares have more than tripled. So the market has rewarded the family's long-term bet. Lucas: That's the thing about family businesses that are well-run — they can afford to think in decades, not quarters. Hermès doesn't do flashy marketing. They don't chase trends. They make leather goods in France, by hand, and they don't outsource. That patience is built into the ownership structure. Luna: And it's also built into the succession planning. Axel Dumas was groomed for years before becoming CEO. The family has a clear process for identifying and developing the next generation, even if they choose not to run the company themselves. Lucas: Speaking of succession — you know, this is a good moment to mention something behind the scenes. We do these shows every day, and they're ad-free. A small group of listeners keeps it going through buy me a coffee dot com slash fexingo. If these conversations have moved your thinking forward in some way, that's the simplest way to keep them coming. Luna: Yeah, it's a small thing that adds up. We don't have a big marketing budget — it's really just the community. Lucas: Alright — back to Hermès. One more angle I want to touch on: the role of the French state. France has a legal framework that allows families to set up holding companies with voting rights locks. It's called the 'Loi Florange,' passed in 2014, which gives companies the right to issue shares with double voting rights for long-term shareholders. But Hermès didn't need that law — they had already built their defense. Luna: And interestingly, LVMH also uses a holding company structure for control. Bernard Arnault controls LVMH through a family holding company called Groupe Arnault. So both sides were using the same playbook — just with different objectives. Lucas: That's a great point. The difference is that Arnault's holding company is designed to allow him to control a publicly traded conglomerate with a relatively small economic stake. The Hermès holding company is designed to prevent anyone else from gaining control. Same tool, opposite intent. Luna: So what's the future for Hermès? The lock-up expires in 2031. Do you think the family will renew it? Lucas: I think they will. The family has signaled that they intend to keep the holding company in place indefinitely. There's no reason to dismantle a defense that has worked so well. And the next generation — the seventh generation — is already being brought into the fold. They're being taught the craft, the history, the values. Luna: There's a line from the Hermès family that I love: 'We are not in the business of selling bags. We are in the business of making objects that last.' That kind of philosophy is hard to maintain under a conglomerate that demands quarterly growth. Lucas: And that's really the takeaway. Family businesses that survive for generations have a clear sense of identity, a governance structure that protects that identity, and a willingness to sacrifice short-term gain for long-term independence. Hermès is the textbook case. Luna: Alright, Lucas. Next episode, we should look at a family that chose to sell — and what happened after. Lucas: I like that. There's a lot to learn from both paths.