LVMH, THE luxury goods house controlled by Bernard Arnault, has reaped a paper profit of about €2 billion from a raid to build a 17 per cent stake in Hermès International.

Shares in Hermès rose yesterday by 17 per cent on disclosure of the LVMH interest in the maker of silk scarves and Birkin handbags.

The stakebuilding appeared to have surprised the stock market, the management of Hermès and key members of the families that control the group.

In deals that add to Mr Arnault’s reputation as the canniest dealmaker in the luxury goods sector, LVMH added to a long-term stake in Hermès that was below the 5 per cent threshold for disclosure under French regulations.

LVMH had bought options to buy about 6 per cent of Hermès at about €80 a share.

The remainder of the stake has been bought from undisclosed members of the families that control Hermès, according to sources.

LVMH is expected to disclose its interests by today. The average cost of its 17 per cent stake is expected to be about €80 a share. That compares with yesterday’s closing price of €202.85, which was up 15 per cent on the day. At the close, LVMH would be sitting on a paper profit of €2.2 billion.

Stock market traders said the sudden surge in Hermès’ share price could be due to banks, who had not perfectly hedged the options sold to LVMH, trying to close out their positions.

The extended Hermès family is expected to resist attempts by Mr Arnault to gain control of the company, the ownership of which it has jealously guarded for more than a century. “Unsolicited” movements in the company’s capital led the company to “confirm its absolute unity and unanimous wish” to retain long-term control of the company, the family said.

The AMF, the French markets regulator, said it would be looking into the transaction as a matter of routine. Under AMF rules, an investor must declare a shareholding of 5 per cent or more. LVMH said it was fully compliant with French stock exchange regulations. – Copyright The Financial Times Limited 2010