The Taste of Luxury - Bernard Arnault and the Moët-Hennessy Louis Vuitton Story

“Five years for Férinel, two years for Boussac, one year for Lacroix, a few months for Céline... Bernard Arnault is going faster and faster.”

“Bernard Arnault is one of the best financiers of his time. He likes to buy, restructure, buy again, and restructure again.”

“Dior must embody "the most beautiful thing in the world," Bernard Arnault is convinced of this. So he attacks the symbol: the building on Avenue Montaigne. It will be completely rebuilt, modernized, while keeping the spirit of Christian Dior. On the fourth floor, the president's office and those of his close collaborators overlook a rotunda, the small living room is adorned with a portrait of Christian Dior and a few white flowers, two dining rooms are planned. The entire floor is covered in pearl grey, walls, mouldings, carpets, and decorated with large black and white photos of the new-look era collections. A mixture of coldness, refinement, and supreme elegance...”

“What does Bernheim explain to him? Instead of having a majority, that is to say 51% of the capital of a company A, it is better to hold 51% of a purely financial company B, which itself will hold 51% of company A. The same control over company A can be achieved by dividing the initial investment by two. The reasoning can be extended indefinitely. These are the basic principles of cascading holdings, Russian doll structures, or even stovepipe schemes. The technique is as old as the world.”

“Arnault knows, however, that he cannot play the game of "my ideas, your money" with financiers for long. Especially if he wants to attack healthy companies. This observation is not an obstacle, however. The miracle solution exists. It's the stock market. Next time, instead of relying on financial support from investors, he will introduce the capital of his various companies to the stock market.”

“Bernard Arnault takes his place. Despite his appearance of a young seminarian, he is clearly not there to preach the good word. "I am the boss. From Monday morning, I will be here and I will personally lead the company. You will keep all your functions. There will be no power vacuum."”

“His financial talents have allowed him to realize his dreams. All that remains is for him to reveal his effectiveness as an industrialist. He thinks it will be easy. Nothing and no one is in his way anymore. And yet, this Friday the 13th marks the end of quick conquests.”

“It is time to return to France to buy a company. "Find it for me," he tells Pierre Godé. Which one does he want? He has no idea. However, when he goes to Bloomingdale's to buy a blue bathrobe with a red border and a suit, he chooses Dior and thinks: "There is no more beautiful name. In the United States, the president of Dior is better known than the president of the French Republic..." Prophetic.”

“Chassagnon. Without taking the time to go back to his own office, he rushes to a phone booth on Boulevard Saint-Germain and calls Bernard Arnault, whom he knows to be in the North. He has already talked to him about different cases (syringe factories, toy companies, and even 3 Suisses), mostly companies in difficulty because at the time bankruptcies are numerous, and he believes that Férinel has a team of capable men who can revive a failing company. But what Pierre Godé proposes that day is beyond comprehension: nothing less than... Boussac!”

“Are not lost businesses those that reserve the biggest surprises and the biggest profits in case of success? It is enough to study them, better than anyone else, and to work on them without leaving anything to chance.”

“Bernard Arnault only buys 20% of the shares held by the four brothers, which is 105,000 shares (6% of the capital) out of a total of 1.1 million for a unit price of 250 francs payable over seven years, that is, in 1991. In other words, the operation does not cost him anything immediately. The Willot brothers keep 80% of what belonged to them. This allows them to sell later when the price has gone up. But they lend these shares, which they still own, to Bernard Arnault. He can use the voting rights attached to them. With total control of the business, Arnault can negotiate a concordat with Boussac's creditors. Only then will he proceed with a capital increase of 400 million francs, which will allow him to take over the business.”

“In the contract, the state requires that Bernard Arnault take over CBSF4 at the same time as SFFAW. In return, he asks the government to reset the counters. Bernard Arnault makes two financial commitments. On the one hand, he will have a group of investors subscribe to a capital increase in SFFAW. On the other hand, he accepts a clause for a return to better fortune: if the business becomes prosperous again, Boussac will repay 300 million francs between 1990 and 2005.”

“After signing the contract, Arnault began negotiations with private creditors. Is he showing a particular talent or is he benefiting from Boussac's total decrepitude? The fact is that he obtained a concordat under excellent conditions. The privileged creditors (about a third of them) accept a repayment of 100% over three years; the others reduce their due by 40%, and will be paid over eight years.”

“At the beginning of 1985, Bernard Arnault took stock. Since his visit to the Willot brothers six months ago, he has come a long way. He got what he wanted: the fashion house Dior, the flagship, but also a distribution group (Conforama, Belle Jardinière, and Bon Marché) with interesting real estate assets. He also acquired packaging factories and Peaudouce baby diapers. The downside: a dilapidated textile group.”

“The three-year industrial plan established before the Boussac takeover aimed to preserve the "perpetuity of the company and most jobs." The term is vague. In any case, Arnault believes that it did not have any contractual character towards him. How could it have been otherwise? No serious business leader taking over a company in distress would have blindly committed to it.”

“The young man from Arles was getting impatient at Patou. He had already won the Golden Thimble. His collections were exciting. Pushed by his businessman, Jean-Jacques Picard, he wanted to go further, create ready-to-wear. But Jean de Moüy, the president of Patou, was reluctant, and he didn't pay him well: no more than 25,000 francs per month. Bernard Arnault was interested in this unloved designer. He was seduced during a lunch. He was certain that Christian Lacroix should not be let go. What should he offer him? Dior's ready-to-wear? A house for himself? Arnault studied the costs and followed his intuition: he would launch a great fashion house: Christian Lacroix. To lead it, Paul Audrain. Seventy million francs were put on the table at first, with an investment of 200 to 250 million francs planned over five years.”

“The Lacroix adventure dazzles Bernard Arnault. Forty years after Marcel Boussac, he relives the same adventure: the birth of a fashion house. For the first time, he feels he has accomplished a work. But the president of Dior does not deviate from his path. Incessantly, he pursues his ascent and seizes, that is his technique, the opportunities that come within his reach.”

“Jacques Letertre. He succeeded because he went fast. In less than four years, he became the president of Duménil-Leblé, a former small brokerage house that became a bank, and he is at the head of a colossal fortune. His recipe: take full advantage of the pitfalls of regulation whenever possible. Initially, he fully benefited from "interest rate spreads" by detecting the very lucrative niche of arbitrage between the money market and the bond market: Duménil issued 2 to 10-year bills on the money market, then carrying an interest rate of around 9.5% at 5 years. He simultaneously subscribed with the capital raised to bonds of the same duration yielding up to 11%. It was enough to pocket the difference. It took his success for the Bank of France to regulate activities on "interest rate spreads" and limit the jackpot.”

“Later, Jacques Letertre specialised in the technique known as Greenmail. It consists of buying a package of shares in a takeoverable company with which the repurchase of these securities is renegotiated at a generally higher price under the threat of selling them to a potential acquirer.”

“Like his grandfather had initiated him into the life of construction sites, Bernheim reveals to him the workings of finance that he masters with Machiavellian perfection.”

“Of Bernard Arnault, he simply says: "Believe me, he is very good." The president of Dior, even if he does not always share this mentor's analysis, is very concerned about his appreciation. He is indebted to him. It is Bernheim who transmits to him the secret of the safest, fastest, and cheapest technique for realizing his projects. As a good student, he learns with perhaps excessive zeal.”

“Carlo De Benedetti, Jean-Luc Lagardère and Vincent Bolloré are closely inspired by it. Bernard Arnault, on the other hand, will go so far as to build a real pyramid. The interest of the system lies in its far-sighted philosophy. From a minimal investment, it will be possible to target much larger targets, while carefully avoiding launching a costly takeover bid.”

“Each call to the market will now provide him with his starting investment. The best way to orchestrate takeovers with other people's money. Small shareholders will thus replace the bankers of the early days.”

“At the top of the network, Bernard Arnault places Arnault & Associés, the parent company of the whole (formerly Boussac, now Financière Agache et Férinel). The cornerstone of Bernard Arnault's financial construction, this company is the one that will benefit most from the restructuring carried out within the group. It not only receives dividends from the various subsidiaries of the group, but it is also the main owner of this heterogeneous structure which counts no less than ten companies, most of which are profitable. Arnault & Associés is controlled 60% by the Arnault family, the rest being held by a group of investors (Crédit Lyonnais, Duménil-Leblé, BNP, GAN, Finial...) (see table 1).”

“On the floor below, Bernard Arnault houses Financière Agache et Férinel. Further down, a constellation of SMEs spread across four sectors of activity: luxury (Dior, Christian Lacroix, Céline), distribution (Bon Marché, Belle Jardinière, Conforama), industry (Peaudouce, Saint-Frères, Boussac) and finance (Facet, Crédit Financier Lillois) 7.”

“This compartmentalized structure proves to be a real treasure. Every time he needs money, Bernard Arnault will introduce one of his subsidiaries to the stock market, without losing control of the whole, or even strengthening it. Perfect mastery of financial techniques. This will be the guiding principle of future operations.”

“For his first call to the market, the buyer of Boussac chose Conforama. He offers small shareholders 15% of the capital. The financial profitability of the chain of stores clearly ensures the success of a stock market introduction. The operation was launched in September 1987. An indisputable success. The second company to take the path to the Palais Brongniart will be Arnault & Associates. Shortly after Conforama, the family company will sell 10% of its capital at a high price: 490 francs per share.”

“In this autumn of 1987, Bernard Arnault's attack plan is ready. His springboard will be Dior, his aircraft carrier, Crédit Lyonnais, his fighter jets, Lazard, and his various companies will serve as ammunition. As for his objective, it will be LVMH.”

“A few rooms on Rue de la Trémoille in Paris served as an office until a small hotel belonging to the Mercier family became available at 30 Avenue Hoche. Alain Chevalier, supported by the families, then decided to build a real headquarters in the image of the new group. A large modern building bringing together Hennessy on the first floor, Moët on the second, Parfums Dior on the fourth and fifth, financial services on the sixth, the General Directorate on the seventh, and on the eighth, two dining rooms with lacquer and orchid decor overlooking the rooftops of Paris, reflecting the new manager's fascination with Japan.”

“"Can we believe that champagne is still synonymous with luxury when more than 128 million bottles are consumed on the French market? Is it a luxury to drink cognac when, for our Hennessy brand alone, consumption approaches 2 million bottles in Ireland for just over 3 million inhabitants? Let's talk about prestige instead."”

“The threat of a raid is becoming increasingly clear. Alain Chevalier and Jean-Louis Masurel call on Bruno Roger for help. Together, they reflect on different means of deterrence and decide on an issuance of bonds with subscription warrants for shares (OBSA) on the eurofranc market. Shareholders waive their preferential subscription rights in favor of potential foreign investors whose names they don't even seek to know. The issuance is launched in mid-March 1987 under the direction of David Dautresme, managing partner of Lazard. The bank on Boulevard Haussmann takes the lead of the banking pool which includes Crédit Lyonnais, BNP, and Crédit Suisse-First Boston. Each bond, worth 10,000 francs, is accompanied by 18 warrants allowing subscription to Moët-Hennessy shares at 2,720 francs until April 1990. The bonds and warrants are listed separately. In total, the operation ultimately yields nearly 4 billion francs and potentially represents 18% of the group's capital.”

“Henry Racamier is seduced by this challenge. He creates Louis Vuitton SA. His strategy will be twofold: to make Vuitton a noble brand embodying luxury, distant travels, and great adventures through a sophisticated advertising policy. But also to sell worldwide and control its distribution network.”

“When, in January 1978, André Sacau joins Vuitton, the house has two shops, in Paris and Nice, and begins a franchise experiment in Munich. Immediately he realizes that things need to be done differently. Margins are made at retail, in stores. To make money, you need to own the shops. Vuitton, and this is an essential option, will never practice either licensing or franchising, but will develop a partnership policy in all countries by always maintaining control (51%).”

“competitors do: manufacture in France to guarantee exceptional quality and sell in the Far East. The recipe is good. In 1977, Vuitton had two stores, a hundred employees, 70 million francs in turnover, and 7 million in profits. A few years later (1984), it will be 1,217 people, 1.1 billion francs in turnover, and 197 million in profits, and much more thereafter.”

“Nevertheless, André Battestini decides, against everyone's advice, to engage Paribas in the venture. He wonders if he has embarked on a strange adventure... but he perseveres and in October 1981, a consortium that will remain the same for years is finally ready: Penhoët, a portfolio company close to Paribas, takes 10%, Fidic of Serge Desmarais, a former oilman, and Pascal Gruzon (a subsidiary of Elf Aquitaine) share the remaining 10%. Louis Vuitton has taken the first step towards a future IPO. Always”

“much later-, but the operations are going well.”

“In fact, Alain Chevalier and Henry Racamier will only carry out one operation together, which will not succeed: the secret purchase of 10% of Hermès' capital through Crédit Lyonnais. A hostile operation that the president of Vuitton will carefully hide from Hermès' president, Jean-Louis Dumas. The veil will never be lifted, and Lyonnais will eventually resell this stake to the traditional bankers of the saddler.”

“In secret, Bernard Arnault acquires his very first shares. In this autumn of 1987, he moves forward slowly. He waits to replenish his cash reserves. Certainly, his group has 3 billion francs. But that is not enough for the president of Dior. He starts by appealing to private financing. In less than a month, he manages to gather the equivalent of 1.5 billion francs in various credits. 13”

“The providential opportunity came with Peaudouce. The last French diaper company is very profitable. It generates a turnover of 2.1 billion francs and makes nearly 100 million in profits. Arnault will be able to sell it at a high price. Therefore, he begins negotiations with the Swedish group Mölnlyck in the fall. As a skilled negotiator, he manages to impose his price: 2 billion francs. This decision provokes the anger of the public authorities who threaten to refuse the sacred authorization for foreign investments in France to the Swedish group. "Peaudouce was too small to resist the global giants in the sector," argues Bernard Arnault. On January 20, 1988, he signs the sales agreement. At the same time, during a lunch with Christian Derveloy, the president of Prouvost, he negotiates the sale of his textile activities. 14.”

“One can well imagine their first conversation on the phone, one morning in early May: “Would you be interested in a stake in LVMH, Henry Racamier must have said, somewhat condescendingly.” “It would be a great honor, Bernard Arnault certainly replied in the tone of the greatest deference.” When the young boss of Dior hangs up, his smile is carnivorous. "I won," he probably thinks, before inviting his top executives to lunch. Bernard Arnault does not warn Antoine Bernheim. It is still premature. Lazard is already engaged with Chevalier. So he turns to Crédit Lyonnais for the occasion. A first meeting is scheduled with Henry Racamier's banker at the Dior headquarters.”