Sell at the Ceiling, Buy at the Crash

“he sold Peaudouce to Môlnlycke, a subsidiary of the huge paper conglomerate Svenska Cellulosa, for an astronomical price: nearly 2 billion francs (300 million euros). Bernard Arnault summarized this deal succinctly in his book: "We went to Sweden with one of my collaborators to sign the transaction. The night following the official signature, the hotel where we were staying caught fire. We were able to rush down to the hotel lobby in our pajamas with all our files!" The negotiation was remarkable, however. The deal had been on the market for over a year. In October 1986, the English company Smith & Nephew offered 800 million francs. Then, in January 1987, Môlnlycke outbid them with an offer of 1.5 billion francs. Not bad for a company still listed in the books for 300 million! Advised by his collaborator Christophe Mujagic, Arnault asked for 2.5 billion. The Swedes did not want to go beyond 1.7 billion. Finally, they agreed to just under 2 billion. Was it the tenacity of the businessman? Probably. Arnault was able to sell at the top of the stock market cycle. In addition, two years earlier, against the advice of his collaborators, he had decided to increase the prices of diapers to show a flattering financial result. The gamble was risky because if the major competitor Pampers (Procter & Gamble group) had not followed suit, Peaudouce could suddenly have been out of the market.”

“For Arnault, on the other hand, the crash is a new stroke of luck. The opportunity is unexpected. Especially since, for months, he has been amassing ammunition. In September, one month before the crash, he put 13% of Conforama's shares on the stock market, which earned him nearly 300 million francs. A little later, it was Arnault and Associates, the head company, that was introduced to the second market. And in November, Financière Agache obtained a long-term credit of more than 800 million francs from a banking consortium led by Crédit Lyonnais. What does Arnault do with this war chest? With the support of Lazard bank, he buys LVMH shares, both personally and through Financière Agache.”