Exclusive-LVMH Investors Demand Clarity on Bernard Arnault Succession Plan

LVMH Shareholders Seek Clarity on Bernard Arnault's Succession Plans

LVMH Succession Planning Concerns

By Tassilo Hummel and Helen Reid

Investor Perspectives on Succession

PARIS, Jan 26 (Reuters) - Some LVMH shareholders are seeking clarity on how and to whom Bernard Arnault plans to hand over leadership of the luxury giant he has been steering for almost 40 years, saying the lack of transparency is increasingly becoming a risk for the group.

Arnault's Leadership and Future

Arnault, who oversees the $350 billion group spanning over 70 brands including Dior and Tiffany, has five children involved in the running of his luxury empire but has shown no sign of wanting to retire. At 76, he has yet to pick a successor. 

Family Dynamics and Governance Risks

Questions have long swirled in corporate Europe about who will succeed Arnault, France's richest man who last April extended the age limit for his combined CEO and chair role for a second time, to 85.

In the strongest public comments to date on the issue, some of LVMH's shareholders told Reuters the unresolved succession issue has become a liability for the company.

"The succession planning, as of now, appears unclear and opaque," said Stefan Bauknecht, equity portfolio manager at Deutsche Bank's DWS, LVMH's 12th-largest shareholder according to LSEG data. “We want more transparency and a plan on how things will evolve."

"Ten years ago, succession was not a pressing issue. Today, it has become a risk factor and leads to a governance discount on the company," said Ariane Hayate, European Fund Manager at Edmond de Rothschild in Paris, which holds LVMH stock.

LVMH, which is due to report annual results on Tuesday, said in detailed responses to Reuters' questions that succession plans for its executives aren't public, but "obviously they do exist", without referring specifically to Arnault's role. 

SUCCESSION PLAN SELDOM DISCUSSED

Investors said the latest age extension appeared to be an attempt to buy Arnault time to decide.

"They (LVMH) probably can't give the clarity because he doesn't have clarity in his own mind," said Paul Moroz of Mawer Investment Management, another LVMH investor. "You really don't know until it's done, but it's probably low odds it works out."

Arnault has indicated the subject is not top of his agenda.

"Talk to me again in 10 years, I can give you a more precise answer," he told CNBC in December. "As in every family, at one point, there is a succession but I hope that, unless I get the ball on the head in a tennis court, I will make these 10 years."

Reuters interviewed seven institutional investors, six of them LVMH shareholders. All of them said they had no idea about the company's succession plans, with four describing the lack of clarity as problematic. 

"I am unaware of any emergency plan, for example a group of caretakers who would activate quickly and secure Arnault’s legacy. Such things are simply missing,” Bauknecht said.

LVMH said its plans, even though they won't be revealed, cover both the medium-term view and the scenario of "sudden events".

Others described the topic as taboo in conversations with the company. Two large long-term investors said they expected the issue to weigh on LVMH's share price as time passes. Berenberg analyst Nick Anderson said he had noticed an uptick in market scrutiny of the issue, but saw no evidence yet of a "succession discount".

FOCUS ON WHO, NOT WHAT, WILL SUCCEED ARNAULT 

Regulatory filings from a 2022 restructuring of the chain of holding companies that control a majority of voting rights in LVMH only offer a glimpse into the family's transition plans.  

A new legal entity, Agache Commandite SAS, was created with Arnault's five children - Delphine and Antoine Arnault from his first marriage, and Alexandre, Frederic and Jean from his second - each owning a 20% stake. The unit will head Agache SCA, the holding at the top of the control chain, as soon as Arnault leaves the role.

Barring specific instructions from Arnault, his heirs would make any decision by a majority of three, corporate filings show.

“This is a time bomb,” said Kedge Business School professor Eric Pichet, who focuses on corporate governance. “There are always tensions in a second generation. And when you are five, it can’t be avoided.”

LVMH told Reuters the alleged risk of gridlock at the holding company level "does not exist". 

While a majority of shareholders backed the move last April to extend Arnault's tenure, there were notable dissenting votes. Asset manager Baillie Gifford abstained, citing concerns about "the lack of detailed disclosure around succession plans". Large investor Allianz GI voted against the resolution. Both declined to comment for this story. 

(reporting by Tassilo Hummel; Editing by Lisa Jucca and Emelia Sithole-Matarise)