Arnault tightens control on LVMH with simpler holding structure

Bernard Arnault and his family plan to simplify the ownership structure of LVMH Moet Hennessy Louis Vuitton SE to ensure control of the world's biggest luxury group is preserved across generations. 

As a result of the plan, almost all of the Arnault family's stake in the group would be held in a single listed entity, Agache SCA, replacing the major LVMH holding company Christian Dior SE. 

 It's the latest in a series of moves by Arnault, 77, to tighten the family's control over the company he built and prepare it for an eventual succession as investors increasingly seek clarity on the issue.

 LVMH shares were little changed in Paris on Thursday. They have slumped almost 40% this year, amid trouble at its most profitable brand Louis Vuitton in China.

 Agache, a limited joint-stock partnership, would hold a direct stake in LVMH of 49.76% of the share capital and 65.55% of the voting rights after the latest changes are completed. Known in France as a société en commandite par actions, the structure is used by families to cement their grip over a group - legal experts call it a "padlock."

 Ever since the 1980s, when he acquired fashion house Christian Dior and founded LVMH, Arnault has maneuvered to consolidate his control. One of his biggest transactions came in 2017 when he offered to buy out minority shareholders in Christian Dior for €12 billion ($13.7 billion).

 

Fresh push

In the latest plan, a multi-step process would see the family's holdings merged into Christian Dior, before it is renamed Agache SCA. That would make Agache the family's main holding company, replacing Christian Dior as its listed vehicle. 

"Upon completion of these transactions, control over LVMH would thus be exercised within a single company, listed on Euronext Paris for over thirty years," Christian Dior said in a statement Wednesday.

 The effort to keep the limited joint-stock partnership listed was questioned by some, given the minuscule portion that's likely to be held by outside investors.

 "The logic would be not to list Agache SCA at all," said Pascal Quiry, corporate finance professor at business school HEC Paris. That's because "so little is likely to be floating after the offer, at most 1%, and since LVMH is already controlled by the Arnault family anyway," he said.

 As part of the replacement of Christian Dior, minority shareholders will have the option to sell their shares in a tender offer, or remain shareholders alongside the Arnault family within LVMH's yet-to-be created controlling entity Agache.

 Shares of Christian Dior rose as much as 19% on Thursday.

 The Arnault family would be required under stock market rules to make a tender offer, to be paid in cash, for all the Dior shares it doesn't own, representing 2.44% of the share capital. As of Tuesday, the value of that stake is around €1.63 billion, according to the statement.

 ProfitlichSchmidlin AG, a minority shareholder in Christian Dior, wrote to the company's board questioning why the proposed tender offer would only be worth 95% of its net asset value.

 No discount was "deemed appropriate" in previous transactions related to the Arnault family's holdings in 2017 and 2021, the Cologne-based investor said in the letter. "We therefore struggle to identify an economic circumstance that would justify the introduction of a 5% discount today."

 An extraordinary general meeting of Christian Dior shareholders to approve the changes would likely take place before the end of this year, with the tender offer scheduled for the first quarter of next year subject to clearance from the regulator AMF. The tender offer would not be followed by a squeeze-out.