Stack the Cascade, Keep 51% at Every Floor

“Arnault will therefore use the third solution, that of cascading. This involves stacking control companies on top of each other and opening their capital to minority shareholders who wish to be associated with the presumed success. These can be anonymous small investors or clearly identified external partners. He had already practiced this in 1986 when he had to pay cash for the last Willot shares. To find the 400 million francs, he sold a portion of the capital of Arnault et Associés, the former Férinel, his holding company, to Crédit Lyonnais and Duménil-Leblé. The following year, he raised funds by listing 13% of Conforama on the stock market. He brought Guinness in at 40%, then 45%, within Jacques Rober, the shell that now holds the LVMH shares. Of course, the sales are always partial. Bernard Arnault's golden rule is to always retain, under any circumstances, 51% of the capital of his companies to ensure he maintains control.”

“For the CEO, cascading has a major advantage: it allows for absolute power with a small fraction of the capital. As the owner of company A, I control 51% of company B, which controls 51% of company C, which in turn... "With only three successive holdings, one can have power over the company at the bottom of the structure by committing capital equal to about 13% of the net asset," wrote Jean Peyrelevade in the magazine Banque in 1985. The current president of Crédit Lyonnais, who was then chairman of UAP, denounced the ill effects of "capitalism without capital," which gives power to executives who are not accountable to anyone. He is now a particularly discreet director of LVMH. For the king of cascades, there is still a catch: when dividends flow upstream, they are divided by two at each level in the opposite direction! As for minority partners, it is hard to see the advantages they gain from tying themselves up like this, unless they believe that the horse they hitch themselves to will outclass all others and allow them to grow rich alongside it.”