How Louis Vuitton CEO Squashed Tech Moguls To $200 Billion - YouTube

For years, the top of the billionaires list has been dominated by various tech moguls

from Bill Gates and Mark Zuckerberg to Jeff Bezos and Elon Musk.

On May 24, 2021 though, Bernard Arnault, the CEO of LVMH dethroned all the tech moguls

and became the richest person in the world with a net worth over $190 billion.

So, here’s how a fashion tycoon was able to beat out the owners of the largest tech

companies in the world.

Taking a look back at Bernard’s roots, he was born on March 5, 1949 in Roubaix, France.

Unlike his peers at the top, Bernard was not only born into a well off family, but an opulent

family who ran a well respected construction business within France.

Bernard never really had that much interest in the construction business; Bernard’s

true passion was always music.

But he was also practical and knew that it would be nearly impossible to make it as a

concert pianist.

Then again, he did eventually become the richest person in the world, so maybe he would’ve

made it as a concert pianist as well.

Anyway, Bernard chose to go the safe route, deciding to get an engineering degree instead.

Bernard would attend one of the most prestigious universities in France: École Polytechnique,

and he would get a job at his father’s construction company in 1971.

That same year, Bernard visited the US and this would accidentally turn into a pivotal

point in his career.

While in New York, Bernard would ride in a taxi, and in an attempt to start up some small

talk, Bernard would ask the taxi driver if he knew the president of France.

The taxi driver replied that he didn’t know the president of France but he did know Christion

Dior.

Ironically, 50 years later, the average American still doesn’t know the president of France,

but we all know about Christian Dior.

This exchange showed Bernard the international recognition of French fashion design, and

it made him extremely proud to be French.

For a moment, he dreamed about running a French fashion company that was known around the

world.

But once again, Bernard was extremely practical, and he knew that starting his own fashion

brand would be nearly impossible.

So, he simply got back to work with his father after returning to France.

Over the next couple of years, Bernard would convince his father to transition the company

from being a construction company to being a real estate company.

And as the real estate company grew, Bernard would become the company’s president in

1978 at age 29.

After taking lead, Bernard would attempt to expand the company to America in 1981, but

these efforts wouldn’t last that long.

You see, in 1984, the parent company of Christian Dior, Boussac, went bankrupt.

And the French government was looking for a buyer.

At the time, Bernard was quite wealthy, but he had nowhere near enough money to buy a

large brand like Christian Dior.

He knew that this may be his only chance to buy the company though, so he started talking

to some bankers.

Bernard would eventually land on Antoine Bernheim from Lazard financial services who agreed

to buy up the rest of Boussac and let Bernard run the company.

Bernard would end up buying Boussac for $80 million out of which he supplied $15 million

and Lazard supplied $65 million.

As soon as the acquisition went through, Bernard got to work.

And as we previously discussed, Bernard was extremely practical, and this required him

to make ruthless decisions.

Bernard didn’t really care about Boussac, the only reason he bought the company was

to acquire Christion Dior.

So, his first order of business was to revive the other companies owned by Boussac and then

sell them.

He started off by firing 9000 employees and dramatically leaning up the various businesses.

He would then flip these businesses for a total of $500 million.

This was extremely uncharacteristic of French businessmen at the time who generally prioritized

empathy over profits.

This wasn’t necessarily because they were super nice individuals.

They did, however, care a great deal about being viewed as empathetic businessmen.

Bernard didn’t really care about creating such a perception though, and he just ate

up all the criticism he received from the media.

One of the most iconic names given to Bernard by the media was “the wolf in the cashmere

coat.”

Bernard would just continue on his path though, and his next goal was to complete his Christian

Dior acquisition.

He already bought most of the brand when he bought Boussac, but the perfume division of

Christian Dior had been previously sold to Louis Vuitton Moet Hennessy.

So, Bernard still had to buy back the perfume division to complete his acquisition.

In order to accomplish this, Bernard would befriend the leader of the Louis Vuitton Brand.

At the time, the leaders of the two brands Louis Vuitton and Moet Hennessy were having

a major fall out.

Bernard would side with the Louis Vuitton boss to oust the leader of Moet Hennessy and

get himself into the company.

Eventually, he would turn on the Louis Vuitton boss as well, making himself the leader of

LVMH.

He didn’t have any equity in the business though, so building up equity would be his

next target.

Bernard would pour in all the money he made from flipping Boussac’s businesses, and

he would garner additional funding from Lazard to buy a significant stake in LVMH.

By 1990, Bernard was able to take control of LVMH.

Let’s just keep in mind, 6 years before this, he was trying to expand a family real

estate company to America.

So, between 1984 and 1990, Bernard went from a generic real estate businessman worth tens

of millions of dollars to being the CEO of LVMH worth hundreds of millions of dollars.

That’s really quite a transition, but Bernard was just getting started on his luxury French

empire.

Over the next few decades, Bernard simply went on a buying spree picking up any and

every fashion company he could get his hands on.

Some of his most notable purchases include Celine in 1996, Sephora in 1997, Bulgari in

2011, and Tiffany & Co just earlier this year.

Today, LVMH owns an impressive 75 different brands which are divided into 5 major sectors.

The first sector is Fashion & Leather which is dominated by Louis Vuitton.

The second sector is perfume and cosmetics and this sector is dominated by Christian

Dior.

The third sector is Watches & Jewelry and this sector is dominated by Bulgari.

The fourth sector is selective retailing & other, and this sector is led by Sephora.

And finally, the last sector is wine & spirits which is dominated by Hennessey.

Despite this meteoric success, Bernard Arnault has had his share of major failures as well

such as his attempt to acquire Gucci in 1999 which is known as one of the most bitter fights

in corporate history.

In 1999, Bernard decided that he wanted to buy Gucci.

Gucci valued their autonomy though, and they weren’t looking to be acquired.

So, Bernard would just go onto the open stock market and start buying shares of Gucci.

He started off small, buying just 5% of the company.

The CEO of Gucci at the time, Domenico De Sole, was promptly notified of the purchase

and De Sole instantly knew what this meant.

Arnault promised that the purchase was just a small passive investment, but De Sole saw

right through this facade.

The Gucci board would immediately organize a meeting, and they would discuss the two

ways this could play out.

Either Bernard would make an offer to buy the entire company or he would continue to

buy shares from the open market until he could force an acquisition.

Bernard chose to go with the second option and he would quickly accumulate a stake in

Gucci through the open market and a private deal.

In just a couple of weeks, LVMH would up their stake to 26.7%.

Soon after Bernard would have a meeting with De Sole during which Bernard would ask for

3 seats on the board.

De Sole would reject this offer, and Bernard would just continue to buy up more shares

of Gucci, upping his stake to 34.4%.

This move was on purpose and was designed to put massive pressure onto Gucci.

You see, the creative director at Gucci, Tom Ford, had a contract that allowed him to leave

the company with no penalties if any one individual were to garner a 35% stake in the company.

Having no choice, De Sole would offer Bernard two seats on the board, but Bernard would

reject this offer.

Bernard would go on to call a special meeting with the board members which he could do because

of his large stake in the company.

Knowing what this would lead to, De Sole would simply give in and offer LVMH the opportunity

to buy the entire company for $85 per share.

Bernard could have picked up the company right then and there, but Bernard would decide to

show some mercy and he wouldn’t take on the offer.

Meanwhile, De Sole would come up with a last resort idea that would end up saving Gucci

from LVMH.

De Sole would create an Employee Stock Ownership Plan.

This plan entailed diluting all the shareholders of Gucci and creating stock that would eventually

be awarded to employees.

The creation of the employee stock ownership plan increased the total amount of Gucci stock

available by 42%, and this subsequently reduced LVMH’s ownership of Gucci from 34.4% down

to 20%.

Bernard was obviously furious, but he didn’t think he was going to lose Gucci.

He simply thought that Gucci wanted LVMH to pay a premium to buy the company.

So, Bernard would start negotiations with Gucci as to who would purchase the newly created

stock.

But little did Bernard know that De Sole was actually talking with Francois Pinault who

is the leader of the Kering Group.

And De Sole would end up selling the 42% stake to the Kering Group for $3 billion.

After seeing this, Bernard would become livid and he would sue to block the deal.

LVMH would offer $85 per share to buy the entire company and LVMH would argue through

the courts that Gucci must consider their offer.

The courts would agree that Gucci must consider Bernard’s offer, but that Gucci didn’t

need to take their offer.

Gucci would end up rejecting Bernard’s offer and they would choose to sell the 42% stake

to the Kering group for $75 per share.

The Kering group would go on to buy the rest from LVMH at $94 per share in October of 2001.

Both sides would end up calling the outcome a victory.

Gucci was able to avoid being acquired by LVMH, and LVMH was able to profit $700 million

by flipping the shares to the Kering group.

But in reality, I think Gucci unfortunately lost this battle because they ended up diluting

their shares and still getting acquired anyway.

Throughout the 2000s, Bernard would attempt a similar strategy with Hermes, but he would

eventually end up backing away from that acquisition as well.

At the end of the day, though Bernard did have some sour deals, most of his acquisitions

have gone on without a hitch, and this has allowed him to build LVMH to be the largest

fashion company in the world and the 18th largest company in the world with a market

cap of about $400 billion.

With a 46.84% stake in LVMH, Bernard has successfully built up a fortune worth just under $200 billion

today.

What do you guys think about Bernard’s vicious series of acquisitions?

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