For the past three years, the French fashion company Hermes has been staving off the attempts of its larger competitor LVMH, or Moet Hennessey Louis Vuitton, as the former tries to takeover the latter. While LVMH has had its hand in nearly every luxury and fashion product available to sell, ranging from suits to champagne, Hermes is renowed above all else for their handbags. The grapple between these two companies has had its fair share of drama in recent history — including, but not limited to, major fluctuations in stock prices — but recently the law has stepped in, with consequences for the entire fashion industry.
France’s regulatory body for stock trading, the Autorite des Marches Financiers or AMF, recently imposed a harsh fine on LVMH for their purchase of shares in Hermes stock. LVMH acquired some ten percent of Hermes’ corporate stock and received a major fine for insider trading as well as manipulating the price of stock. This manipulation, largely played out by a major media campaign to stir up interest in Hermes’ stock, was not taken kindly by the AMF, who announced that they would levy a fine of eight million Euro against LVMH, or approximately ten and a half million dollars.
The Defense Rests
While LVMH has the right to appeal the fine, the company announced on September 4th that they would not pursue an appeal. By paying the fine, the company figures that it will not have to spend as many resources as it may have had to in order to fight the judgment in court. This may mean that LVMH had a shaky legal ground to stand upon if they chose to appeal, but it may also mean that the amount of money necessary to defend their actions simply did not merit taking the chance that the decision would not be overturned. This cost-benefit analysis proved too rich for LVMH’s tastes, and the company will pay the fine to the French authorities.
What It Means For The Luxury World
For the average person interested in buying LVMH products or Hermes handbags, the legal decision amounts to very little. The cost of bags and their prominence in LVMH catalogues will not change. The real significance of the decision comes down to the importance in the fashion and luxury industry of protecting the brand and the company image that customers come to expect. By going through with the appeal, LVMH ran the risk of having their company name dragged through the dirt with accusations of insider trading and collusion. By choosing not to mount a defense against the French financial authorities, they can recover much more quickly.
Fashion And Legality
Many companies fight it out in courts in order to maintain a positive image. These legal battles, however, can cost a company a huge amount of resources. LVMH’s decision not to commit more millions of Euros to the appeal shows that their attempts to takeover the Hermes brand is not a personal stake but rather a business decision that has not been negated by the fine handed down.