Tutorial 4
1. Although in its sixth generation of family ownership, a number of the family members
wanted to ‘cash–out’ of the business. Ordinarily this would be affected by having other
family members buy those shares or interests. But other family members did not either
have the capital or interest in buying those interests. The solution was to list 25% of the
company’s shares on the public marketplace, therefore accessing a liquid capital market
for the firm’s shares. The risk of a public listing is the increasing reporting and
transparency (information for customers, suppliers, and competitors), and the fact that
any investor can purchase those shares – even LVMH.
2. LVMH had acquired the position under the radar of the Hermès family, company
management, and industry analysts, by using equity swap. Equity swaps can be structured
so that only their value is tied to the equity instrument; at close-out the contract may be
settled in cash, not shares. Using this structure, the swap holder is not required to file
with the AMF, since they will never actually own the stock.
3. The Hermes family defended themselves by forming a holding company of their
family shares. They protected themselves when Laurent sold shares that were worth 1.8
million euros. They created holding company that would provide them that their