French probe finds LVMH built up Hermes stake in secret

PARIS - The French stock market authority has found LVMH secretly bought shares in rival Hermes to build a stake, and not merely make a financial investment as the luxury group has claimed, a newspaper reported.

LVMH said it would fight the findings of the watchdog's probe before its sanctions committee when it meets on May 31 to hear the company's defence.

Hermes was not immediately available for comment.

LVMH, which owns 22.6 percent of Hermes, surprised the market in October 2010 when it announced it had a 14 percent stake, gained partly via derivatives that allowed it to not declare its holding.

Le Monde reported on Saturday that the stock market authority's investigation found LVMH had in 2001-2002 acquired an initial stake of 4.9 percent through subsidiaries based in tax havens and which was not declared in its accounts.

In France, companies are required to disclose when they take a stake worth more than 5, 10 and 15 percent of a another company's capital if the target is listed on the stock market.

In 2007, LVMH resumed accumulating shares in Hermes by buying equity derivatives through financial intermediaries and subsidiaries, with each keeping holdings below the 5 percent disclosure threshold, the newspaper said the probe had found.

Hermes, which sees LVMH's stakebuilding as hostile, argues LVMH did not tell the market for many months it was a buyer of the shares, which would have boosted its shares if public.

The probe concluded that everything pointed to LVMH trying to build a stake in its rival, in contrast to LVMH's claim that it was making a financial investment, the paper said.

"LVMH intends to vigorously contest the conclusions found in this report," the company said in a statement.

"The sanctions committee ... will not hand down a decision until it has examined all evidence presented in LVMH's defence," LVMH said. "It will then only be able to conclude the absence of any wrongdoing by LVMH towards the law and the (stock market authority's) rules."

Le Monde said the watchdog would decide whether or not to level sanctions against LVMH after the May 31 hearing.