Hermes battle to fend off LVMH gets fresh legal boost

PARIS - An investigating magistrate has been named to probe the conditions surrounding the stake that luxury group LVMH has built in smaller rival Hermes , a judicial source said on Thursday.

The appointment gives fresh impetus to Hermes's battle against LVMH, the world's biggest luxury group and owner of fashion brand Louis Vuitton and Hennessy cognac.

The news means the financial crimes unit of the French police made preliminary checks and found sufficient evidence to turn a preliminary investigation started in October into a full-fledged investigation.

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

In July, Hermes, which sees LVMH's entry into its shareholder capital as hostile, asked prosecutors to open a probe into alleged insider trading and share manipulation by LVMH related to its stake-building in 2012.

Hermes argues that LVMH did not tell the market for many months that it was a buyer of Hermes shares, information that would have boosted Hermes' share price.

LVMH, which denies any wrongdoing, said Hermes' complaint was groundless and threatened in September to retaliate by launching proceedings against Hermes for making disparaging and libellous remarks.

But LVMH waited to lodge its own complaint against Hermes until the appointment of an investigating magistrate, on Feb. 22, became public. The group started proceedings against Hermes at the beginning of this week.

"LVMH plans with this initiative to put an end to the unfair and disparaging campaigns carried out against it since it arrived in the shareholder capital of Hermes," the group said in a statement sent to Reuters on Thursday.

The Paris prosecutor's office had still had not received LVMH's complaint on Thursday.

A source close to Hermes, who did not wish to be named, said LVMH's complaint was a "decoy launched just when a magistrate has been named".

"We initiated proceedings against LVMH only after having been assured by our lawyers that there was no risk of making libellous statements," the source added.

LVMH's stakebuilding has led to a feud between it and Hermes, which has created a majority family shareholding to protect it from a takeover by LVMH.

LVMH, however, has repeatedly said it dies not have any plan to bid for Hermes.

The legal loophole allowing a party to use derivatives to build up a stake in a listed company has since been closed following amendments to French law last year.

The French markets watchdog, AMF, said in October it did not believe LVMH had engaged in insider dealing or share price manipulation when it bought its first holdings in Hermes.

However, the AMF transferred the case to its sanctions committee to decide whether LVMH had done anything wrong. The panel is due to decide by the summer, a spokeswoman for the AMF said on Thursday.