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Financial Goals
To seize a promising business opportunity, one must identify the right moment and place;
an assertion by the LVMH CEO, Bernard Arnault. Bernard is the first non-family CEO whose
company has made it to the top of the Fortune 500 Companies.
Patrick Thomas is a former Chief Executive Officer of Hermes International, a South
African-based company. Patrick left the helm of his company in the year 2006 to offer a chance
to his family to control the business empire. However, the step of letting his business become a
family affair has come back to haunt him as it has led to family wrangles that appear to threaten
the survival and success of the business.
While riding to his village, Patrick Thomas receives a call from Bernard. Thomas has
known Bernard Arnault not only as the Chairman of the worlds largest luxury brand, but also as
the richest man in France. The call is a nightmare to Thomas since Bernard is calling to
announce his new control of 17% interest of Hermes International, a company owned by
Thomas. As much as Bernard promises of ensuring that Hermes International succeeds, Thomas
does not trust him. Thomas, therefore, calls Hermes Executive Chairman to assess the potential
threat of incorporating Bernard Arnault into their business.

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Hermes International is a multibillion dollar French Company (Barry 1). The company
specializes in a wide range of luxury commodity production such as leather goods, watches,
perfume, and jewelry. The company was founded in the year 1837 by Thiery Hermes who was
famous for making the finest harnesses and saddles in Paris. Since the 20 th century, Hermes
International and LVMH have been bitter rivals in business and the situation got worse when
LVMH bought part of Hermes International shares.
Question 1
Hermes International publicly shared 25% of its listing in an attempt to access a liquid
market for its shares. The most significant reward of a public listing of company shares was
liquidity of share values and market valuation of the shares. Therefore, the company gains the
ability to expand its capital base. However, public listing of shares also comes with risks. For
example, share prices in the public market tend to fluctuate over time. This fluctuation might
impact negatively to the business. Another risk is the increasing transparency and reporting that
leaks critical information to suppliers, customers, and competitors.
Question 2
LVMH Company took over Hermes International with even the knowledge of the latters
Chief Executive Officer. LVMH achieved this by using equity swaps; that is, the companies
signed a contract to swap future cash flows at a pre-determined date. Equity swaps are
determined by performance in the stock exchange.
Bernard Arnault avoided government regulations since the French Company Law acknowledges
that a company has rights to purchase 5% or more of another company once the initial company
has attained 5% or more of the equity stake in the merger agreement.

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Question 3
The holding company organization should safeguard the familys control of the business
entity depending on the on-going legal battles. The structure of the holding company prevents
other family members from selling their shares to the public. Taking shares to the public market
is a major risk associated with family businesses.
The structure of a holding company tends to last forever, that is, it is a perpetual trust. Therefore,
although the company is publicly traded, shares with voting rights are held in perpetual trust,
thus cannot be purchased by the public.

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Work Cited
Barry M. LVMH: The Empire of Desire. The Economist. June 2, 2012.