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How one franc turned LVMH into the world’s largest luxury group

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Via Financial Times

A symbolic one franc. That is all that Bernard Arnault paid for Boussac, a near-bankrupt textile company, back in 1984.

From this tiny acquisition, Mr Arnault built LVMH over the past four decades into the world’s largest luxury group by revenues and became Europe’s richest man in the process. LVMH’s €46.8bn sales last year were more than three times the size of its nearest rival, Kering. 

This growth has been propelled by Mr Arnault’s voracious appetite for dealmaking. Initially, he was drawn to struggling textile company Boussac because it owned one particular jewel that he wanted to get his hands on: luxury brand Christian Dior. From there Mr Arnault used Christian Dior as the cornerstone on which he has followed up with 40 or so more acquisitions. 

After snapping up Boussac, Mr Arnault’s course was confirmed in 1989 when he engineered a majority stake in LVMH, itself the product of a merger between fashion house Louis Vuitton and champagne and cognac producer Moët Hennessy.

He then ousted the Louis Vuitton president Henry Racamier from his family company. Mr Arnault went on to deploy the same tactics of ousting founders, dividing families or driving a wedge between business partners in order to make other acquisitions such as Givenchy, Château d’Yquem and Duty Free Shoppers. 

Dot plot showing LVMH's diverse acquisitions since 1996

Mr Arnault has used deals as a way to expand beyond LVMH’s roots and enter new sectors.

For example, in 2006 he bought luxury hospitality group Hotels Cheval Blanc. LVMH further extended its reach into luxury experiences in December last year with the $3.2bn acquisition of travel and hospitality group Belmond, owner of the Hotel Cipriani in Venice and the Orient Express. 

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Only rarely in Mr Arnault’s extensive history of dealmaking has he missed out on a prized target.

His biggest defeat came 20 years ago when French industrialist François Pinault emerged victorious against him in a long-running and acrimonious battle for control of Italian luxury brand Gucci. Mr Pinault used Gucci as a linchpin to build his own luxury empire: Kering. 

And Mr Arnault’s one other notable miss was Hermès, the French brand known for its Birkin handbags and silk scarves.

About a decade ago, LVMH began secretly amassing shares in Hermès, using derivatives contracts with different banks to stay below the disclosure threshold.

Stacked bar chart showing that LVMH's revenues have grown 11-fold since 1995

The Dumas family who owned Hermès did not realise what was happening until it emerged in 2010 that LVMH owned 17 per cent of the company.

Mr Arnault always maintained that he had only “good intentions” vis-à-vis Hermès and no plan to take control. But the Dumas family thought otherwise, believing it to be a corporate assault. 

They successfully went to court to prevent LVMH and the Arnault family from mounting a takeover, although Mr Arnault still had a victory of sorts as he made money when he sold out of Hermès.

Earlier this week LVMH confirmed that it was pursuing another high-end brand, US jeweller Tiffany & Co.

If successful, the $14.5bn deal would mark Mr Arnault’s largest-ever acquisition and push LVMH further into hard luxury, giving it a portfolio of jewellery assets to rival that of Richemont.

Age does not appear to have dimmed 70-year-old Mr Arnault’s hunger for deals. He told the Financial Times this year: “We are still small. We’re just getting started . . . We are number one, but we can go further.”

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