Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Hermes Family Held Onto Control Through a Holding Company
Transcript
- Lucas: In 2010, Bernard Arnault made an aggressive move into Hermès. Through LVMH, he quietly accumulated a 17% stake using equity swaps—derivatives that let him bypass disclosure rules. When the Hermès family found out, they didn't just fight back. They fundamentally rewired the ownership structure of the company. Luna: I remember that. The family went ballistic. But what I've never fully understood is the mechanism they used. Everyone says 'they created a holding company' but that undersells what actually happened. Lucas: You're right. It's not just any holding company. They created something called H51—named after the 51% threshold—which is a société en commandite par actions, or limited partnership with shares. In plain English: they converted their ordinary shares into partnership units that carry super-voting rights, but those units are non-transferable. If you try to sell them to an outsider, they automatically convert back to ordinary shares with one vote each. Luna: So the family essentially said: you can have our cash, but you can't have our votes. Lucas: Exactly. And the effect was immediate. In 2010, the Hermès family collectively held about 73% of the shares. After the H51 structure was put in place in 2011, that same group controlled over 73% of the voting rights—despite owning a slightly smaller economic stake. They locked in control without needing to buy back shares. Luna: This is where I think most family businesses get it wrong. They think you need to own more than 50% of the equity to keep control. Hermès proved you can own 50% of the economics but 70% of the votes—if you're willing to structure it right. Lucas: Look, a lot of listeners may be thinking about their own family business or the one they advise. And I want to be honest with you about how this show stays on the air. We don't run ads. A group of listeners chips in monthly at buy me a coffee dot com slash fexingo, and that's what funds these deep dives. Luna: Yeah, and we're grateful for it. It means we can spend the time to really understand structures like H51 instead of rushing through a surface-level take. It keeps us independent. Lucas: Right. So back to Hermès. The H51 structure didn't just protect against LVMH—it also solved a classic family business problem: how do you give liquidity to family members who want to cash out without diluting control? The partnership units can be sold to other family members, but not to outsiders. So the family creates an internal market for shares. Luna: That's the part I find clever. Most families treat the business like a trust—no one can sell. That builds resentment. Hermès created a pressure valve. Lucas: And it works because the family is large enough. At last count, there are over 60 family members descended from the five children of Émile-Maurice Hermès. They're not all on the board, but they all have a stake. H51 gave them a framework. Luna: Let's talk numbers. When LVMH made its offer in 2010, what was the premium? Lucas: LVMH offered around 170 euros per share. At the time, Hermès was trading closer to 110. That's a 54% premium. Most boards would have taken the deal. But the family didn't even consider it. Luna: Because control wasn't for sale. And that's the real lesson: Hermès wasn't just protecting a stock price. They were protecting a culture. Lucas: And that culture is built on something rare in luxury—vertical integration. Hermès owns its tanneries, its silk farms, its glassworks. They don't license the name. When you own the whole supply chain, you can't just hand it to a conglomerate and expect the same product. Luna: So the H51 structure isn't just about voting rights. It's a signal to the market: we are not for sale, ever. That gives the operating team the freedom to invest in 10-year projects without worrying about quarterly earnings. Lucas: Let me give you a concrete example. Hermès spent 12 years developing their Arceau watch movement—an in-house mechanical caliber. Under LVMH, that project would have been killed in year three. The H51 structure let the family overrule any short-term pressure. Luna: But is the H51 structure replicable? I mean, for a smaller family business, the legal costs alone could be prohibitive. Lucas: It's replicable in principle, but you need the right legal jurisdiction. France has a long tradition of sociétés en commandite. The Netherlands does too. In the US, you'd use a multi-class stock structure—think of how the New York Times Company has Class B shares that control the board. But the US structure is less permanent because the dual-class shares can be challenged by activist investors. Luna: So Hermès's advantage is that the partnership structure is baked into French corporate law. Once you convert, it's very hard to undo. Lucas: Exactly. And that's the trade-off. You get permanent control, but you also lock yourself into a system where you can never sell to a trade buyer without converting those shares first. The family is voluntarily illiquid. Luna: Which is why most families don't do it. It takes conviction. And a long-term view. Lucas: Let's fast forward to 2022. LVMH eventually sold its stake that year, after a court battle. But the H51 structure remained. And in 2023, Hermès was named the most valuable luxury brand in the world by valuation—overtaking Louis Vuitton. The irony is palpable. Luna: The company that refused to be bought is now worth more than the company that tried to buy it. Lucas: And it's not just market cap. Hermès has consistently had the highest operating margin in luxury—around 35% in 2025. That's higher than LVMH's fashion and leather goods division. Control allows them to price without discounting. Luna: I want to bring up a counterpoint. Some critics say the H51 structure entrenches an underperforming family. What if the next generation isn't capable? Lucas: That's the risk. But Hermès mitigates it by having a non-family CEO—Axel Dumas was actually a family member, but they've also had outsiders like Patrick Thomas from 2003 to 2011. The H51 structure doesn't guarantee family management. It guarantees family control over the board. The actual executives can be professionals. Luna: So the family sets the guardrails, but the professionals drive the car. Lucas: Exactly. And that's a model more families should consider. You don't have to run the company to own it. You just need to ensure the company is run in a way that aligns with your values. Luna: What's the single biggest takeaway from this story for someone in a family business today? Lucas: That control and ownership are separable. You can give up economic ownership—sell 40% of the equity to fund growth—while retaining 70% of the vote. But you need to do it before a crisis, not during one. Hermès built H51 in 2011, before the LVMH threat escalated. They had the luxury of time because they were proactive. Luna: And perhaps the deeper lesson: the best defense against a takeover isn't a poison pill. It's a shareholder base that believes in your long-term vision. Lucas: That's it. Hermès has never held a single analyst call. They don't do quarterly guidance. Their investor relations page is a single paragraph. And yet, institutional investors love the stock because the governance is transparent—they know exactly what they're buying. Luna: It's a paradox. The most controlling family structure in luxury is also the one that attracts the most outside capital. Lucas: Because clarity of control is valuable. If you know the family will never sell, you don't have to worry about a takeover premium arbitrage. You can value the stock on its fundamentals. And those fundamentals are extraordinary. Luna: So the Hermès model is a masterclass in patient capital. I wonder if we'll see more families adopt similar structures in the next decade. Lucas: I think we will. The number of family offices has exploded since 2020. Many are looking for ways to institutionalize control without going public. The Hermès playbook is becoming required reading. Luna: Next time on Family Business Stories: we're looking at a very different kind of control—how the Ford family maintained voting control through a special class of stock after going public. That's episode 118.