Hermes Defends Brand Against LVMH in "Cultural Fight"

When French luxury brand conglomerate LVMH acquired a minority share of 127-year old family-owned French luxury brand Hermes in late 2010, it was hardly a match made in heaven. LVMH head, billionaire Bernard Arnault, commented to the New York Times in March 2011, "We are a totally peaceful investor, but as a leader in the best quality products in the world, we believe we can bring a certain savoir-faire to improve the functioning of their business."

Foreshadowing what was to come, however, Hermes CEO Patrick Thomas responded, "We don't want to be a part of this financial world which is ruining companies and dealing with people like they are goods or raw materials. It's not a financial fight, because we would lose that. It's a cultural fight."

That "cultural fight" has now flared up into a renewed legal battle, as Hermes recently filed suit against LVMH for "the way in which LVMH entered the capital of Hermes." The suit also alleges insider trading and manipulation of the share price, reports the Financial Times. LVMH has counter-sued for defamation.

At the heart of the battle is the independence of the Hermes brand itself.

LVMH started with a 17.1 percent stake of the company but has increased its holdings to 22.3 percent. Hermes clearly believes LVMH is on a path to taking majority control. In 2011, Hermes won the right to protect itself by forming a holding company to hold a majority stake in the Hermes group. CEO Patrick Thomas, who plans to retire next year, is slated to be replaced by Hermes family member Axel Dumas, ensuring that the ownership will remain in family hands.

Hermes, which touts its artisanship (witness a current US showcase) as the heart of the brand, is considered one of the world's great luxury brands in and of itself, renowned for scarves and handbags. LVMH, on the other hand, is essentially a portfolio of luxury brands, which include fashion brands Celine, Donna Karan, Fendi, Givenchy, Louis Vuitton, and Marc Jacobs, among others. LVMH also owns numerous luxury brands in the wine/spirits, perfumes/cosmetics, and jewelry/watches categories. As a result, an LVMH-controlled Hermes would become just one more brand in a very large stable.

A recent ranking of luxury brands demonstrates another reason Hermes may be fiercely resisting an LVMH takeover. Louis Vuitton, valued at $25.9 billion was just named the world's most valuable luxury brand for the seventh year in a row, but taking over second place was Hermes, valued at $19.1 billion. Hermes' value represents an increase of 61 percent over the prior year.

So this may indeed be a cultural fight for Hermes, but it is just as much a battle to preserve the equity of a luxury brand that doesn't want to play second fiddle to any other.