AMF fines LVMH 8 million euros over Hermès stake buy

The French financial market regulator has fined LVMH a record 8 million euros for failing to inform markets it was raising its stake in elite handbag and scarf maker Hermès. The world’s largest luxury group has already stated it plans to appeal,

calling the decision and size of the fine levied "totally unjustified".

“In a decision handed down on 25 June 2013, the AMF Enforcement Committee imposed a 8 million euros financial penalty on LVMH. The company was accused of failing to inform the market that it was preparing to raise its stake in Hermès and of having breached its disclosure requirements when publishing its consolidated financial statements for 2008 and 2009,” the French Financial Markets Authority said Monday.

"Taking into consideration the seriousness of the successive breaches of public disclosure requirements, which consisted in concealing each stage of LVMH's stake building in Hermès, the Committee imposed an 8 million euro fine on LVMH," said in a statement issued Monday the Autorite des Marches Financiers (AMF).

The two companies have been involved in a bitter pulse since LVMH revealed in late 2010 that it had built up a 17 percent stake in the then family-owned Hermès. In May, Hermès began a legal battle to get the swap deals reversed, accusing LVMH and the three banks – Societè Generale, Natixis and Credit Agricole - saying the transactions amounted to fraud.

LVMH fined a record 8 million euros

The owner of Louis Vuitton acquired the ever increasing stake through the direct purchase of shares and complex financial instruments (derivatives) known as equity swaps, which allowed LVMH to bet on movements of a share price without actually owning the shares. The AMF took issue with the way LVMH used swap agreements with three banks for amounts just below mandatory disclosure rules.

Because of the fragmentation of the stake, LVMH was able to avoid, for a time, the legal obligation to reveal it, which usually becomes necessary when an investor owns at least 5 percent of a company, according to French market rules. Since 2010, LVMH has continued buying shares on the market and now holds a 22.3 percent stake in Hermès.

While it acknowledged that in isolation, none of the deals infringed disclosure rules, the AMF found there was no commercial justification for how they were structured and, taken together, constituted a breach.

LVMH immediately pledged to appeal the decision before the Paris Court of Appeal, calling the ruling "weak" and its underlying analysis "totally erroneous."

The French stock market regulator said that the group owned by Bernard Arnault had failed to respect its rules when building up a 17 percent stake in Hermès in 2010.

The decision by the AMF's enforcement committee said the "circumvention of the rules intended to ensure transparency, which is so vital to orderly markets, must be punished to the same extent as the disruption it causes."

It said LVMH should have informed markets in 2008 and 2009 about the deals in its consolidated accounts as it had a responsibility to report preparations for transactions that would have an impact on share prices.

The fine is a record for AMF, but less than the 10 million euros sought by its investigators, stressed French media on Tuesday.

"This decision is in line with Hermès' position," said a member of the Hermès entourage quoted by Dow Jones.