Guinness

"On December 14, two days before the government decision, Julien Charlier receives Bernard Arnault at his home on Rue de la Faisanderie. The young man is tired but still determined. He lays his cards on the table: "If you don't agree to become my advisor, I risk losing the game." Charlier is quick to seize the opportunity offered to him. By becoming Boussac's consultant, he will be able to see his competitor's cards before playing his own and he will block the path of his enemy Bidermann. He sets his conditions: a commission of 0.75% on Boussac's turnover (nearly 10 million francs) and the possibility of buying Boussac (if Arnault is a seller) 20% below the price of other offers. The boss of Férinel accepts these exceptional conditions, which he will later remember when he imposes an identical clause on his future partner, Guinness. He now holds the last trump card he was missing."

"Therefore, Tennant is not in a position to push the bids. Is this a sufficient reason to surrender to Bernard Arnault, hands and feet tied? His only way out: a clause that allows him to exit Jacques Rober by selling his shares to Arnault from July 1, 1991-but at 80% of their stock market value. This means that Arnault will be able to easily borrow to buy back the shares held by Guinness if Tennant wants to sell them. He will have a guaranteed profit."

"The Jacques Rober construction is admirably crafted. It gives Arnault, in his offensive, the financial support of the powerful Guinness battalions, while leaving him in control as the majority shareholder. How could the English brewer accept to be so bound and tied? He wanted at all costs to participate in LVMH's capital to consolidate his global distribution agreement in wines and spirits signed in 1987, which brought him a quarter of his profits, or more than 1 billion francs. Anthony Tennant, the head of Guinness, was convinced that he had no chance of succeeding alone in making a strong entry into LVMH due to the nationalist reactions of the French public and authorities, for whom the luxury group is part of the national heritage. With Chevalier's endorsement, Arnault would have argued that he had the support of the public authorities and that the most effective way to enter LVMH was to partner with him. This was confirmed by his own advisory bank, which was none other than... Lazard Brothers in London."

"them. Thus, through his initiatives, Henry Racamier has created a united front against him. Which Bernard Arnault skillfully takes advantage of to win the game. Because everyone, now, owes him: Chevalier, whose situation he preserves, Moët and Hennessy, whom he saves from marginalization, Guinness, whom he allows to take a significant, albeit indirect, stake in the capital of LVMH. Even Racamier himself, who still believes that their interests, those of luxury, will eventually converge against the camp of wines and spirits. He still sees himself as the indispensable main shareholder."

"Queen Victoria had ordered that Stout be added to the champagne glasses served at Buckingham Palace as a sign of mourning for the death of Prince Albert-Guinness was banned from the Stock Exchange."

"Above all, a few days before the meeting, LVMH's stock has once again soared on the stock exchange. Who is buying? Racamier started it. Immediately, Arnault reacted by taking 10% of the capital. He brings out the big guns in the face of his rival's rifle. "It was an attack, it was entirely legitimate that we respond without delay," explained the CEO of Dior to justify this investment of 4.1 billion francs made in three days, without his partner Guinness being consulted, contrary to the terms of their agreement, which will provoke the anger of Anthony Tennant, forced to finance 40%. The Englishman is starting to think that young Arnault is exaggerating. But can he go so far as to endanger the global distribution agreement between the two groups? Not really. And the presence of Alain Chevalier helps to calm him down."

"However, the arrangement around Dior did not go as smoothly as expected. When he organized it, Arnault never doubted for a moment that the Dior shares issued would sell like hotcakes. Although they were expensive, he believed that the name Dior, along with the control of LVMH, would be magical enough to attract the wallets of French and international investors to whom they were offered. However, the plan seemed a bit far-fetched. Indeed, to everyone's surprise, investors hesitated. Crédit Lyonnais, the lead underwriter, encountered more difficulties than anticipated. Apart from the Japanese insurer Nippon Life, which invested 500 million francs, foreign financiers stayed away. The remaining shares were left in the hands of Crédit Lyonnais, which had to wait some time to recoup its funds. Eventually, Guinness, as part of the overall negotiation, took over the 16% stake in Dior's capital that the bank had no use for."

"Before even finalizing the Jacques Rober deal, Financière Agache and Guinness start buying LVMH shares on the stock market. On July 4th and 5th, they scoop up more than 10% of the capital in front of stunned traders who don't know what's going on. With the addition of the OBSA, the Franco-British tandem potentially holds 24% of LVMH."

"He also allows Guinness to buy 16% of Christian Dior, but these were securities that Crédit Lyonnais had on its hands! In both cases, Arnault cleverly presents his progress as a concession. Tennant, thus, does not lose face even though he had to give in to the young Frenchman."

"His most difficult appointment takes place in the evening, during a dinner with Anthony Tennant. The dispute between the two men is considerable. Tennant was on the verge of betraying Arnault in recent days. Each of them, one after the other, had solo purchased LVMH shares, in violation of their agreements that bind them within Jacques Rober. For this, Tennant had even threatened Arnault with legal action by letter. And Arnault, for his part, had stopped the last attack by brandishing the accusation of insider trading to the administrators. The dinner continues until 5 am, in the small light of dawn: unheard of for an early riser like Arnault! This shows the importance, for him, of this negotiation. The agreement finally reached provides that Guinness will increase its stake in Jacques Rober from 40 to 45% and will have a seat on the LVMH board. A masterstroke: Arnault secures an additional 5% of his financing without losing an ounce of his power."

"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."

"On April 29, 1994, the Christian Dior and LVMH shares were sold by Guinness to Financière Agache for 11.7 billion francs, while their stock market value that day was 16.911 billion, representing a loss of more than 5 billion for Guinness! In reality, this loss is only apparent. Guinness received 3.7 billion in cash but also 34% of Moët-Hennessy, until then a 100% subsidiary of LVMH, with an estimated value of 8 billion francs. However, this stake was also "obtained at a significantly undervalued price," asserts the Gaudino report, which, in the absence of accounting documents, establishes an evaluation of Moët-Hennessy by comparing the operating results with those of LVMH and its stock market value. From these calculations, it appears that Guinness benefited from an undervaluation of the price of Moët-Hennessy shares for a total amount of 7 billion francs. "This loss was clearly incurred to the detriment of the minority shareholders of LVMH, who held the sold Moët-Hennessy shares." In other words, by selling its LVMH and Christian Dior shares to Financière Agache below their price on the one hand and, on the other hand, by acquiring LVMH shares of Moët-Hennessy, also undervalued, Guinness would have made a neutral operation, but would have massively enriched Bernard Arnault (shareholder of Financière Agache). This contested operation led to the almost doubling of Christian Dior's interest percentage in LVMH, which rose from 24% to 40.75%."

"But most importantly, on that same day, Domenico De Sole pulled an incredible rabbit out of his hat. Gucci announced the immediate issuance of 20 million new shares, exclusively reserved for employees, which reduced LVMH's stake from 34.4% to 25.6%! Called ESOP (Employee Stock Ownership Plan), this "employee share ownership plan" is a diabolical invention that uses the inexhaustible resources of Dutch corporate law to prevent LVMH from imposing its views without taking majority control of Gucci. Michel Zaoui, head of mergers and acquisitions in Europe for Morgan Stanley (the advisory bank for Guinness against Bernard Arnault), came up with the idea."

"When Henry Racamier introduced Bernard Arnault to the representatives of Moët and Hennessy on June 30th, he was obviously unaware of the negotiations between the president of Dior and Chevalier and Guinness. The families were also unaware. The president of Vuitton presented his takeover project which angered the families. They saw it as a betrayal from within, when they had feared an outside raider. They would never forgive him for this and asked Henry Racamier to leave the room. Frédéric Chandon de Briailles and Alain de Pracomtal then drew Bernard Arnault's attention to the dangers of a takeover: "Not only can another group attack us, but our best collaborators may leave us," they told him. Arnault acknowledged the argument. Alain de Pracomtal continued: "Would you see any inconvenience in associating with Guinness, with whom the group has committed itself?" Bernard Arnault was too happy to answer no. In exchange for this agreement that suited him, he asked for a right of first refusal on the shares of the Moët and Hennessy families, that is, on 13% of the capital. And he obtained it. The agreement will be signed at Lazard at the end of July. It does not have the unanimity of the approximately 200 members of the families. About fifteen young "reformers", especially among the Hennessys, think they are being forced. In any case, from now on, they are all linked: if they want to sell their shares, they are required to offer them first to Bernard Arnault. His strategy is starting to pay off. Bernard Arnault has managed to rally everyone to his side in... less than a week. First Racamier, who still relies on him to oust Chevalier. Then Chevalier, who is convinced he has found the necessary support in him to neutralize Racamier. Just like the families, who are now condemned to play with him. Finally Guinness, who has obtained a seat at LVMH thanks to him. A clever move. Everyone thinks they owe him something. No one yet suspects the young man's true intentions. "They will not be able to compromise my plans," he must speculate. He knows he has only strengths in his hand."

"On the eve of autumn, Anthony Tennant is embarrassed. Certainly, the agreements of July 8 have allowed him to strengthen his positions in LVMH and especially in Moët-Hennessy, to which he is linked by a vital distribution agreement. But is the alliance with Bernard Arnault really reliable? Two nights (July 6 and 7) were too short to give birth to "Jacques Rober". The terms of the contract seem increasingly ambiguous as the days go by. Wasn't the Briton naive? And he remembers a banker's joke: "Jacques Rober is JR, the villainous hero of the Dallas series." For Bernard Arnault, the agreements are clear: the two parties are associated for at least three years within Jacques Rober, with 60% for Bernard Arnault and 40% for Guinness, with the aim of acquiring 30% of LVMH, except for "unforeseen circumstances". Each party agrees not to buy outside the joint structure without prior consultation. In other words, it is possible to pick up shares provided that one's partner has been informed, but without waiting for their response. The Briton is worried. Aren't there two possible interpretations? Can't Arnault buy more easily than Guinness? What is an "unforeseen circumstance"? What will happen beyond the 30% threshold? And above all, if Guinness wants to sell its stakes before the three-year deadline, it will only be compensated for 80% of the value of its shares. The terms of the "largely interpretive" agreement reduce Anthony Tennant's room for maneuver."

"clause from Guinness. If in July 1991 the British brewer wants to sell its shares, it will only be compensated at 80% of their value."