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answer seminar 5

Because if they list shares on a public market, they have to report a lot of information
to public, it makes the company become more transparency, and the company may
lose control since their are other shareholders. The risk from public listing is the
competitors can also buy the shares from public market like LVMH. The reward is the
company can finance more money to make the company grow faster
Even though Hermes has a family ownership for six generations, a number of the
family members wanted to “cash-out” of the business. Usually, this would be affected
by having other family members buy those shares or interests. But other family
members did not either have the capital or interest in buying those shares. The
solution was to list 25% of the company’s shares on the public marketplace, therefore
accessing a liquid capital market for the firm’s shares. The risk of a public listing is
the increasing reporting and transparency (information for customers, suppliers, and
competitors), and the fact that anyinvestor can purchase those shares, like LVMH did.
Another risks are takeover attempts and pressure to increase earnings. The rewards for
a company going public are the financial benefit in form of rising capital, liquidity of
share values, increased public awareness, and increase in market share..
"Bernard Arnault and LVMH acquired a large position in Hermès shares without
anyone knowing. How did they do it and how did they avoid the French regulations
requiring disclosure of such positions?"
LVMH acquired a large the position in Hermes shares using equity swaps. Equity
swaps are derivative contracts whereby two parties enter into a contract to swap future
cash flows at pre-set date. The cash flows are referred to as “legs” of the swap. In
most swaps, one leg is tied to a floating rate like LIBOR and the other leg is tied to the
performance of a stock or stock index. Also, equity swaps enable an investor to bet on
the value of stock without actually owning the shares. An investor typically enters
such a swap arrangement with a bank in return of a fee. To hedge its position, the
bank will often buy and hold an underlying stock. Because these options were settled
in cash, under AMF rules, they do not have to be declared.
The Hermes family defended themselves by forming a holding company of their
family shares. How will this work and how long do you think it will last?
The Hermes family defended themselves by forming a holding company of their
family shares. How will this work and how long do you think it will last?They
protected themselves when Laurent sold shares that were worth 1.8 million euros.
They created holding company that would provide them that their ownership stake
percentage would always vote as a one and that would secure them and continuously
be the control of the family. This would actually protect them from any other
company, and even if other companies buy their shares, family will be still in the
control over it. From my perspective, it will last as long as its contract. However, if
they start cashing out their shares, family would not last long. 3
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