Lvmh To Pick Up Stake In Duty-Free Shopping Chain

However, two DFS minority shareholders filed legal action to block the deal. The move would mark a dramatic extension of LVMHs retailing activities as well as increasing its exposure to fast growing Asian markets.

The company had hoped to buy the whole of DFS for $4.2 billion, but it only managed to settle terms with two of the four shareholders in the privately owned group, Charles Feeney and Alan Parker, and has agreed to buy their 58.75 per cent stake for $2.47 billion.

Robert Miller, a flamboyant billionaire who owns 38.75 per cent of DFS, and Anthony Pilaro, a tax lawyer who owns the remaining 2.5 per cent, originally made their own offer to buy out their partners.

 

When they lost to LVMH, they took legal action in an attempt to block it. They say the proposed transaction breaches an agreement that any dispute between shareholders would be submitted to a wise man for resolution. They have filed papers in the New York County Supreme Court arguing that because LVMH competes with and sells to DFS, its control of DFS will inhibit the companys growth.

Hartley Rogers, a Morgan Stanley managing director representing Miller and Pilaro, said: We believe the sale is in complete violation of the so-called wise man agreement, which is designed not to put shareholders in a position where other shareholders are also suppliers to the company.

Shares in LVMH whose portfolio of brands includes Louis Vuitton, Christian Dior and Chandon and Givenchy rose strongly Wednesday in the largely static Paris market, closing ahead FFr38, or 3.4 per cent, at FFr1,153.

Edouard de Boisgelin, a London-based analyst with Merrill Lynch, said LVMHs planned move into distribution would make good strategic sense. But he suggested there was a material risk that DFS which has more than 180 duty free and luxury goods stores in airport terminals, hotel lobbies and city centre locations throughout the Pacific Rim might lose some of its existing customers.

This might occur if other companies felt LVMHs products were likely to receive preferential treatment as a result of the deal. LVMH took pains to emphasise that DFS management would be kept in place in its entirety. The French group is DFSs biggest single supplier, but it is also a competitor to the extent that it operates its own stores in locations similar to those served by DFS.

The US companys turnover is equivalent to about half LVMHs 1995 sales of FFr29.8 billion. Standard & Poors Wednesday put one of LVMHs short-term debt ratings on negative credit watch.

Financial Times

It said the groups pro forma net financial debt would rise to about FFr16bn against net debt on June 30, 1996 of FFr3.1bn.