The Turning Point: How Arnault gobbled up LVMH

0:00I'm Jonathan Ford and if you like financial history as much as we do on A Long Time in Finance, we've got some excellent news. Our new friends, the Library of Mistakes, run a brilliant course on advanced valuation in financial markets, written and presented by leading academics, senior economists and investment practitioners and hosted by one of the UK's leading business schools. The course covers key areas including equity valuations, economics, behavioural finance and liquidity. And the really good news? They're giving listeners to the podcast a 25 % discount. Just go to the link in the show notes and when you get to the booking page, enter ALTIF25.

0:41That's A-L-T-I-F 25 in the box marked promo code.

0:51thanks for listening to a long time in finance with Jonathan Ford and Neil Collins

1:01welcome to the turning point a new series from a long time in finance so this week we're talking about a French entrepreneur called Bernard Arnault and the turning point we're looking at is the moment where everything really totally changed for Arnaud and changed him from a successful French businessman into a kind of global success story running LVMH, the luxury goods business, and ending up ultimately as Europe's richest man, I think. His stake was worth more than 100 billion euros. I don't know if it still is.

1:37Neil Collins: I think he still is. So anyway, he's done very well for himself has Bernard. So we should sort of kick off. I'm going to start by talking a little bit about his background, where he comes from, and basically how he gets started. And he's born in 1949, in a suburb of Lille in northern France. It's a kind of fancy suburb, where largely members of the kind of industrial aristocracy of northern France. And if you think northern France is, you know heavy industry iron steel textiles so this is not a rags to riches story no he's it's comfort to mega riches yeah i think that's reasonable what they say and it's tremendous how very snobby all the french biographies of arnaud are people who write about him they very much home in on the fact that while he's comfortable his grandparents had set up a successful business building factories for industrial companies.

2:35In this exalted company in this suburb of Lille called Croix, they say that the Arnauts were of modest rank. Anyway, he's brought up largely by his maternal grandmother. And it's on the mother's side that they had set up this construction company called Ferré Savinel. But it's by that stage run by his father and he is basically given what we might say is quite a Victorian schooling. He's made to learn the piano. He's apparently a brilliant pianist and he's very good at tennis. He's very keen on tennis and he does fantastically well at school. He's obviously extremely bright. He goes off to the Ecole Polytechnique in the late 60s which is you know the top school really in France.

3:23This is a bit like Oxbridge Plus, from which he graduates in 1971. And on the way, because he's a very good boy, he marries the daughter of a wealthy local industrial family called the De Lovres, and it all looks pretty good. So he comes back from university in the early 70s, and almost immediately he's pushed into the number two job being the general manager of the family business.

3:47Neil Collins: I think they were pretty pleased to see him, actually. They must have been delighted when he came through the door and announced he was the boss straight from university. Age 25, yeah. Okay, so this seems to be the classic story of the kind of, what is it called, the Nepo baby, who arrives and takes over the family firm, presumably drives around in a fancy car and just enjoys life, having not really scraped his way to the top. But Belna is really not cut from this sort of cloth at all. Because the first thing he does, pretty much, is he says to his father, after a year of sitting, observing the activities at Ferré-Savinel, he says, actually, this business is going nowhere and you should sell it and reinvest all the proceeds of building industrial factories in a new business, which I shall run, which will make holiday homes on the French coast, which I think is quite a punchy move.

4:37Neil Collins: Yeah, but it was clearly a business which was going nowhere. He was right about that. Yes. So the father says, sure. And they sell the family business for about$6 million, 40 million francs, and reinvest all the money in real estate. And it sort of goes on fine. So that's the first stage where he sort of shows he's not exactly a kind of normal, run-of-the-mill business brain. He's actually quite courageous and takes some big calls. Then the next thing that happens is the election of François Mitterrand. Do you remember him? I do, yes. The scourge of anybody who had any money. I think he introduced a wealth tax in France.

5:17He did.

5:18Neil Collins: As all wealth taxes have discovered or wealth taxers have discovered, it's essentially impossible and they've scrapped it. Right, and the main way that governments end up scrapping wealth taxes is that everyone leaves the country, which is precisely the decision that Bernard took in 1981. He packed his bags, went off to America, set up shop on Long Island Sound and basically waited for things to change in France. but this is actually a very important phase in his development because there are two things that happen in New York one is he meets a whole load of other French expats in New York who become very very important in his life one in particular is a banker he's not particularly important in the sense that it's more his introduction that really counts but a guy called Francois Paul de Combray who is a banker at Lazard in America, introduces him to a man who will be very important in this story, who's a guy called Antoine Bernheim, who was a senior French banker at Lazard.

6:22And he also meets people he wouldn't have met in Lille, the US boss of Société Générale. And he meets a guy called Claude Gros, who is the president of the US branch of a French industrial holding company and it's through him that he has his first sort of whispers of exciting deals that he could do in the French textile industry in particular a company which will be very important in the story called Boussac the other thing that happens in New York is that he ends up living next door to a guy called John Kluger yes you remember him yeah I think I remember the name yes he ran a business called Metromedia it was a sort of quoted company and he did one of these huge early leveraged buyouts.

7:07He then broke the company up and sold all the bits off and became extremely rich. Anyway, he's Bernhard's next door neighbour. It's very odd because Bernhard, he used to do lots of interviews in the press. Nowadays, he never does any, pretty much. He let on that he was a great friend of Jean Kluger, whose neighbour, but it subsequently emerged that Kluger had never heard of him. And the only real way in which they ever got cross swords at all was when Arnaud went back to France, he sold Kluger his house on Long Island Sand, which was very close to Kluger's and apparently blocked his view of the sea, whereupon he promptly pulled it down.

7:46And Bernard is very impressed by this. He says, it was just incredible. It was a very nice place. But two days after he bought it, he tore my house down. It's so very American. And the lesson he claimed to learn that when something has to be done, do it. Get on with it. In France, we are full of good ideas, he said, but we rarely put them into practice.

8:09Neil Collins: Not just France, I'd say. Anyway, he then upsticks. It's the early 80s. France is like Britain in a terrible mess, deep recession, industrial companies collapsing left, right and centre. And Arnaud goes back largely because he has heard of this opportunity to buy a now completely forgotten company, but once one of the largest textile businesses in France. It's a business called Boussac. And Boussac had been run by a tabonair businessman called Marcel Boussac, who you see lots of photographs of him wearing a morning coat at Longchamp or Chantilly, watching his horses. And he's one of those sort of 20th century businesses who has a newspaper.

8:53he has lots of textile factories, he has other bits and bobs. He looks a bit like David Niven. The most important thing that he has picked up in his sort of magpie career is he owns Christian Dior, which he financed after the Second World War. So Christian Dior, a designer, came to him and said, I want to set up my own fashion house. And Boussac said, sure, his money. And he ends up owning it. This is the first sort of link in the chain of Arnaud's luxury.

9:24Neil Collins: So how did Arnaud get involved with this rather strange conglomerate? Here you have to dip into the whole strange French way of doing business. I'm afraid there's no escape. Can we have the summary chart? I'll try and summarise. But basically, Boussac's business was sort of run out of a series of carrier bags. It went bust and mainly it went bust because of all these textile factories in France, which the government was terribly worried about, you know, not having mass unemployment. So although it had been sold on to other people, it was sort of in a terrible mess, in sort of suspended animation where the government was lending it money to keep the factories open, but the business itself was completely bankrupt.

10:15Neil Collins: Yeah, this is a common story about that time of the cycle where basically all European textile businesses were being driven out of business by the competition from the Far East. And governments everywhere threw money at them to try and postpone the evil day. But as far as I'm aware, not one of them has survived. No, and this was a similar exercise in kind of ultimate futility, but it was extremely politically contentious because Mitterrand's government, of course, was very anti-wealthy businessmen and were constantly intervening in this and threatening people involved and taking them to court.

10:58Neil Collins: You go bust, I'll take you to court. So here's some more money. They seemed to be under the impression that people had somehow looted this bankrupt company and therefore they were putting pressure on them to try and what they call disgorge their illicit gains. Well, they were probably right, but I don't suppose it would have made a lot of difference even if they had done. This is a fantastic kind of fight involving lots of different businessmen. Banks, which have lent money to Boussac, can't get it back. Arno basically gets involved with the assistance of his friend, Mr. Bernheim at Lazard. And it's the first kind of moment where this partnership, which is to prove very powerful, flexes its muscles.

11:44Arnaud creates his own mythology, really. And he claims when he was in New York, he once was in a New York taxi and he asked the taxi driver if he could name who the French president was. And the taxi driver told Arnaud the only French name he knew was Christian Dior. Anyway, this is in theory, the great insight that Arnaud has about Boussac is it's a right old mess full of valueless companies, but hidden in the middle of it is this one extremely valuable asset, which if you can somehow negotiate your way through the thickets that have been thrown around it by rival businessmen, the French government, you'll be able to get a great prize.

12:31He doesn't have any money. That's the thing about Arno at this stage. In America, he was trying to build condominiums in Florida, but apparently that hadn't gone very well.

12:39Neil Collins: Sounds like much too much like hard work. He's got about$15 million. Essentially, even to get to the table with a business like Boussac, even though it's in a terrible state, you have to put up considerably more money than that. And this is where he has his first idea, maybe stemming from his neighbourly relationship with Mr. Cluj in America. He starts to think that the way to do this is to essentially do that old trick of borrowing lots of money. and managing to get control without putting up very much equity. He's very much helped by Lazard, who essentially just raised the money for him from lots of rich people.

13:19He manages to get the money, assemble the money to get to the table. But then he has to kind of find a way to navigate all the political angst that surrounds what's going to happen to the textile companies. And these are not companies he's interested in at all.

13:34Neil Collins: Very sensible of him. Broadly what he does is he realises you've got to sell this to the politicians. He comes up with a package, including a man who's going to run it, a kind of some money, a plan, which is probably completely implausible. And because no one else plausible is there at the same time, the government's getting bored with this constant fight. And, you know, all the other people involved are bored. Everybody's looking for a face-saving way out. Correct. And everybody knew that this business had no future, essentially. Yeah. He manages to pull it off. And despite having started off being the most implausible owner of Boussac, he's come from nowhere with his ex-condominium business and turned it into this textile company.

14:18Now, what he promised the government was he said, I'll keep all the employment in the mills. And this is the source of the ongoing controversy in France as to whether Bernardo is a good guy or not.

14:30Neil Collins: Everybody must have realised that this was what was going to happen. The controversy arises from the fact that he's made all these promises in return for which he's got quite a lot of subsidy out of the state. What he seems to have done, rather, is he got together, a group of people who were not completely unknown to him, got together and set up a company called International Cotonier, and they basically bought all the mills off him for a song, took some of the subsidy. And went bust after a year, much to the astonishment of the government and also, obviously, the rage of the workers who were working here.

15:10Neil Collins: I don't think anybody could possibly have been astonished. This was a business with no future. I know, but you're being a bit kind to the bosses of Internationale Cotonnières because it subsequently emerged that it also siphoned off a lot of the money. And so they did rather better than everybody else. And it was a real scandal. And it still hangs over Arnaud. He claimed he had absolutely no idea who these guys were, and he was astonished by their behaviour, but what could he do? I'm shocked. And this is where he got the name, the Wolf in Kashmir. But the main thing which he comes away with is he comes away with Christian Dior.

15:47And Christian Dior designed the so-called new look after the Second World War. It's slightly gone nowhere under the ownership of Boussac. The perfume company, interestingly, was sold off because one of Boussac's earlier money problems to Moet Hennessy. But what I think Arno spots in this, he's not very interested in textiles because he can't see a way to make money out of mass market textiles. But what he's fascinated by is the fact that the margins on Dior products, well, Dior is not only profitable, it's extremely profitable. and it seems to be largely insensitive in price terms. Its customers essentially are willing to pay such high margins on the goods that essentially you don't have to worry about making them in Asia.

16:38As long as you can be reasonably efficient, you can make a hell of a lot of money making them in France.

16:43Neil Collins: So he had this little gem, and so he decided that if it could get a bit bigger, he could then take more control over the distribution and the retail end of it. Well, that's one of the things which is happening in luxury at this stage, not just here in other companies. In alcohol, certainly, and also to some extent in luxury, people are beginning to appreciate that the traditional business of making saddlebags for aristocrats or haute couture dresses for very, very wealthy women could be extended into lots of other products like handbags, perfumes, which could be sold for extremely high margins on the basis of that brand.

17:24Arno is at an early stage and Dior is a good brand. So he's picked a growing business at a time when the economy is recovering after the recession of the early 80s. And he's also got that great thing, which is he's got an understanding of the benefit of leverage when you are using lots and lots of debt to own an asset and often owning it through a chain of leveraged companies. So you maximize your control and you only have a sliver of equity invested. And consequently, as long as the underlying asset is getting more valuable, you're going to make a lot of money. I see you don't much like this financial jiggery pokery.

18:05Neil Collins: This is how private equity works, isn't it? It's true. This is the whole basis of private equity. Yeah, but he's not doing the sort of private equity which Blackstone does because he's not a buy and sell guy, he's a buy and hold guy. Yeah, I don't think it's against the rules to buy and hold. If you're a private equity, you may think, well, I'm not going to sell this because in five years' time it's going to be worth a lot more because I can see where it's going. Yes, and he's absolutely playing that game. And he's very explicit that he's absolutely not in the business of selling anything. So why was it that he didn't just become Mr.

18:41Neil Collins: Dior? He uses Dior really as a bargaining chip, I suppose, to buy more assets. And we're sitting around the mid-80s. Lots of things are changing in capitalism, if you like, in Europe. In Britain, you've got Big Bang. You've got a recovering economy. In France, you have, to go back to your point about private equity, what you have is you have a group of private equity and raiders who are looking around the world for undervalued assets. And one of the places which they go looking is in France, which in those days is a pretty sleepy place, where a lot of successful businesses are still family controlled.

19:22And the companies which raiders get interested in, one is Louis Vuitton,

19:28Neil Collins: which is a luxury leather goods company, which has been around since the 1850s. And the other is Moet Hennessy, which is a bit like a kind of distillers in France, a successful group of family spirits and winemakers, which has been around since the 18th century. And both Louis Vuitton and Moet Hennessy are kind of interesting because, as I said, a lot of French companies are family owned. These are businesses which have grown bigger than their original form and have done mergers and are no longer fully controlled by the family. Yeah well this is the danger with a family company of course. Even if it's still in theory family controlled the family may not view it all the same way.

20:15The other risk of course is that they outgrow the abilities of the family managers But actually, weirdly, this is not the case in either Louis Vuitton and Moet Hennessy, both of which have professional managers who are extremely well regarded. Moet Hennessy had brought in the first non-family chief executive, a guy called Alain Chevalier in the early 70s. And he had dramatically improved the fortunes of the company. Louis Vuitton had brought in a guy called Henri Recamier,

20:50who is not quite a completely external professional manager. He's the son-in-law of one of the Vuitton families, but he is an extremely capable businessman. Rather than the sort of way I describe Arno and Dior and fashion, he's also picked up on the fact that this sleepy business is in an industry that's revolutionising and the sales line is growing. And if you can get your own distribution by opening your own stores, you can effectively get to control your pricing and all sorts of good things can happen.

21:25Neil Collins: So how come these two tolerably well-run businesses were considered possible targets for Our Hero? Well, one of the reasons is that basically Our Hero is interested in them. They've both been listed. I think Mert-Hennessey was listed in the early 70s. Louis Vuitton was listed in 1984. Basically, exactly the thing you described. Although if you added up all the various family holdings, you could say they've got enough to stave off anyone. They're always paranoid about the fact that, you know, Uncle Godefroy, who needs to put a new roof on the chateau, might suddenly do a deal and sell his holding to...

22:10Neil Collins: Each generation that goes by, you're going to have more and more people who are not connected with the business and will be vulnerable to somebody else coming along and saying, well, I'll take your shares off you. Arnaud is really interested in Moet Hennessy. And the reason he's interested in Moet Hennessy is because, among other things, it owns the Dior perfume brand, which had been sold to it by Boussac in the 60s. Arnaud thinks this is a gem which needs to be reunified. And this is in the 86, 87. Alain Chevalier, who's the Moet-Hennessy chief executive, basically has a panic attack all of a sudden.

22:50Because these days in France, there are no disclosure nonsense. You can do what you pretty much like. So all he can see is some stockbroker is buying the hell out of his shares and he doesn't know who is behind it all. He does what you might expect. A man who finds himself the subject of a stock market ready to do, what does he do, Neil? What could he possibly do? He picks up the phone and he calls his? his friend Antoine Berlheim at Lazard. Quite. And he says, Antoine.

23:19Neil Collins: I have a problem here and I'm sure you can help me because you're not involved here, are you? Yeah, well I don't think he would even have asked that because it would have been an impolite question. But anyway, whether he asked it or not, he's not told that Lazard have a conflict, which is their advising and financing Arnaud, instead of which they come up with a plan. They say, well look, you know, you need to protect yourself against this sort of thing. We'll design what they call a poison pill to see off any predator who might come after your stock. And basically what they do is they advise him to issue this bond.

23:55Guess who he issues it to? He issues it to Lazard, convertible into 25 % of Tennessee's equity.

24:02Neil Collins: He's not as smart as he thought he was, is he? Chevalier. That is a fantastically stupid thing to do. Well, that's good for Bernheim. It means your future is tied to Lazard. Yeah, of course. And so Lazard finds itself suddenly holding a very important stake in Moe Tennessee. But the Chevalier doesn't stop there. He also goes to Louis Vuitton. He says, you know, we've got a problem. Look, I'm getting my shares being raided. And it's going to happen to you as well, because we're both in the same boat. One way we can protect ourselves is by basically merging. So we'll basically be too big or we'll be able to structure things so we can make ourselves impregnable.

24:41So in June 1987, they basically announced a deal and create the world's largest luxury goods business, thinking that they've now put themselves out of the reach of any pesky predator. Anyway, it's a big company. It's got sales of$1.5 billion and profits of$150 million, which in those days is a lot of money. And it's 51 % owned by the families and their banking allies, Paribas and Lazard. One of the first problems that happens with this merger, and this is where your long history of analysing these events, is that when you do a deal for the wrong reasons, purely for defensive reasons, the first thing that happens is everyone falls out.

25:18Neil Collins: True enough. Basically, Rekamier and Chevalier can't agree how to divide up the spoils and who's in charge of what. So they end up having the most fantastic rows, really childish ones. One where there's something about Raccamier puts his name above Chevalier's on the headed notepaper he's designed himself. And Chevalier has the whole stock shredded because he disapproves of the stationery. When you can't even agree on stationery, I think we've got a problem. Yeah, I think that's a very astute comment. Pretty quickly, Louis Vuitton, Moet, Tennessee, kind of from a management perspective, descends into infighting.

26:00And both sides of the business essentially retreat into their bunkers. So there isn't really a kind of single company. It's like two companies tied together that are at war. And Raccamier goes, you know, he goes to the press. He's very snooty. He wanted Vuitton, Louis Vuitton, to sponsor a string quartet with instruments made by Stradivarius. while Merit officials were thrilled to see their Formula One winners unceremoniously doused with their own champagne. He said champagne can be found on the shelves of any supermarket, but our leather goods require exclusive distribution. Anyway, these disputes give Arno ultimately an opening.

26:40So he hires a manager who's been forced out of LVMH and starts buying more and more LVMH stock. There's no real disclosure requirement, so he's not really been smoked out as the antagonist. It's actually all changes in 1989 because of LVMH and Arno. The stock market finally says, actually, we need to have a proper takeover law here. This is a bit embarrassing.

27:05Neil Collins: 20 years too late, still. And he speeds up his buying spree because, of course, the 1987 crash happens and LVMH's shares collapse briefly because everyone thinks it's all going to be a disaster. But Chevalier then makes a second Duff move after issuing all those bonds to Lazard. His friends at Lazard's. Yeah, his friends at Lazard's. He's tilting through his friends. And he goes to see another friend who's this time called Anthony Tennant. Now, you remember him? I do, yes. Man at Guinness. Guinness and Moet, Tennessee have a marketing arrangement already. And Chevalier says, why don't we do a stock swap?

27:42We'll take 20 % of you and you take 20 % of us. he'd already mentioned this idea to racamier but he'd suggested it was going to be about three percent so when he explains his revised plan racamier who's already not particularly keen on him is absolutely appalled and says this is a takeover you're basically turning this into a drinks company and uh you know it's all those people being sprayed with champagne on the formula ones all disgraceful anyway so he is furious then it all descends into once again into complete chaos. Raccamier, in order to try and see off this attempt to tie up with Guinness, approaches Arnaud, who is by that stage, he thought this fellow with some smart ideas seems to be doing a good job at Dior.

28:31We should we should we should get him in. And he'll put Chevalier in his place. So Arnaud, who's been secretly buying shares all this time, suddenly finds himself being invited in and suggested that he could come and work for LVMH. Yeah, you're the fox, come into the hen house. So anyway, Raccamier offers Arnaud a secret alliance, which basically says, the first article says, the two contracting parties have designed to join in this operation to produce direct or indirect control of LVMH in precisely equal shares. And it also says, in the event this operation succeeds, Monsieur Henry Raccamier will be the first representative of the two parties at LVMH and Mr Bernard Arnault will succeed him.

29:18He doesn't seem to have the measure of his adversary here.

29:21Neil Collins: Perhaps it loses something in translation. So the idea is they're going to jointly make a bid for a quarter of the shares in LVMH. But the whole thing falls apart because Raccamier, before he launches the bid, he goes to see Chevalier and says, do you mind if I launch a bid in two days? and Chevalier says, oh, no, no, no, don't do that. Don't rush into anything. Let's sit down and have a think about it before doing anything rash. And weirdly, Rackamier at this point, instead of saying, no, I'm going to launch my bid tomorrow morning, he basically says, sure, let's all have a think before we do anything rash.

29:57And thus he basically dooms himself, I think. He was doomed anyway, wasn't he?

30:01Neil Collins: He was pretty much doomed anyway. Because of the shares in his friends at Lazard's. Anyway, at the same time, Arnaud has gone to see Bernheim at Lazard, say, this is the deal that Rekamier wants to do with me. And Lazard takes one, look at it, and they say, don't have anything to do with that, it's an absolute pile of crap. So Rekamier has basically been totally stuffed by his own advisor. Bernheim's logic for his sort of dismissal of this proposal, this idea of a joint bid with Arnaud and Rekamier, is that you don't want to make an enemy of Guinness, it's too big and powerful you know trying to blow a hole in their deal is going to be too difficult Rekamie is an idiot who might lose control of the situation entirely and the whole thing you'll end up having to sell to a third party somebody like Grand Met in the UK so all the bad idea and so Bernheim's idea is instead of Arno doing a deal with Rekamie he should do a deal with Guinness which is what then transpires.

31:05So basically Arnaud teams up with Guinness to form this joint company, the same thing that was supposed to be doing with his pal Rokamier two minutes earlier. They would acquire 24 % of LVMH partly through buying up the famous convertible bonds, which had been issued to stop people like Arnaud taking over LVMH all those months ago. Chevalier is brought in on this and he thinks it's fine, mainly because it almost certainly sinks his arch enemy, Rekamie, who's really the only person he's thinking about at this particular juncture. Essentially, this is the moment that the fox, or the wolf as he would like to be known, Arno is firmly inside the chicken coop.

31:48He buys more shares, Rekamie tries to basically launch his own share buying operation, but he can't do it. The only thing standing in the way now of Arnaud's complete control is Guinness, because he has a joint company with Guinness, but he's also thought his way around that one, and he's totally legged over your old friend, Mr. Tennant.

32:11Neil Collins: I'm not sure he was the brightest bulb in the box. Basically, the shares are all held by this joint company called Jacques Robert, which is a subsidiary of Christian Dior. But the trap that Arnaud has built into the deal is that the only way Guinness can sell its shares from this entity, which it now owns the LVMH stake through, is to sell them to Arno. And they can only do so after several years have passed and that's at 80 % of the prevailing market price. And somehow, I don't know, some lawyer thought that was a brilliant clause to sign up to. Yeah, that really is. So he locks them in brilliantly.

32:52and they don't get out for years and years and years. Guinness still remains a minority. I think it still is a minority of shareholders.

32:59Neil Collins: I think that's right because it's too embarrassing to crystallise what is essentially a loss on the value of the holding. I thought a bit about this and the only commercial logic I could see in it was the idea that Guinness thought that there would be real value in having a long-term spirits relationship with Moet Hennessy And if this was the price of securing it, i.e. financing Arnaud's Napoleonic ambition to control LVMH, they figured, well, he's going to be around and he'll probably stick by it. But I have to say his record for sticking by deal so far has not been completely unblemished. No, quite.

33:41Neil Collins: I don't know why they agreed to that. It's a mystery. But that is one of the things about Arnaud. he's clearly obviously a terrifically persuasive person. If you think about all the people he's won over, he's won over politicians with the Boussac deal, he's got Bernheim doing all sorts of dirty deals for him. And I think the thing about Bernheim is interesting because you alluded to the fact that there doesn't seem to be much respect for the idea in France, or certainly at this time, that there were sort of conflicts of interest potentially in acting for both sides of a large takeover. And I don't know whether that's still the case.

34:16But one of the interesting things is it does seem that Bernheim took one look at Arnaud and thought, you are somebody who is worth backing. Whenever they came across an obstacle, whether it was the French government in the early 80s or indeed later the LVMH duo, basically for whatever relationship Bernheim or Lazard had with the other side, they sort of subordinated to the task of advancing the affairs of Bernard Arnault.

34:45Neil Collins: It was an absolutely blatant conflict of interest and they should have said, well, we can't act for both. I think in that circumstance what would happen in the UK is that they would ditch the guy that they didn't prefer, but they would have to be done and seen to be done rather than trying to act for both ends against the middle. I agree with that. I suppose the other thing about this whole situation is that what Arnaud demonstrates is a very private equity thing. It's all about personal control. He's the one person who is totally committed throughout the thing to end up with voting control over the whole situation, and he can then determine what happens next.

35:29Neil Collins: Well, the combination of personal control and a huge amount of debt, if you can do that, then you can rule the world. Yeah, and he does indeed. So in the beginning of 1989, after a whole bunch more infighting legal suits, Raccamier and Chevalier try to patch things up and try to demerge LVMH. But by that stage, Arnaud's got so many shares, he just has the plan thrown out. Finally, in January 1989, Chevalier resigns and Arnaud is finally installed, formerly as chairman of LVMH, by which stage he owns about 50 % of the stock. He very much emphasises this point, it's all about ownership. He says, Monsieur Chevalier was an excellent manager, but there's one difference between us.

36:15He was not a shareholder of importance in the business he was in, but I make sure I'm the controlling shareholder of all the businesses I am in. With a sort of cascade of companies where each one may have other shareholders,

36:30Neil Collins: but each one is essentially controlled by the guy at the top. it's amazing how much leverage you can get on that basis. If you own 51 % of the top company and then the other 49 % owns the next company down the chain and so on, you can parlay that into essentially total control. Yeah, well, I can even put some numbers on this. So by the end of 1989, Arno has turned a$15 million stake in Bussac in 83. into a 28 % direct stake in LVMH worth over a billion dollars. So in less than a decade, he's really quite dramatically turned himself into one of the most powerful businessmen in France and also one of the richest.

37:20And from there, it gets even more absurd, if you might say, if you don't believe that leather goods are really the future of the world. One of the other things about it, of course, is his timing is fantastic because he takes over LVMH literally just at the end of the Cold War. And the whole integration of all these countries like Russia, no longer of course, or China into the global economy, means that businesses like LVMH suddenly become enormously valuable.

37:49Neil Collins: Yeah, and there are a clique at the top of these emerging economies for which money almost has no meaning because they have so much of it. All the Russian oligarchs and their wives think that luxury is the only way to be. Yes, and it's an open question whether in his timing he's lucky. I mean, I think he would have made a lot of money anyway, but what happened in the 90s turned him from being an extremely rich and powerful businessman into a kind of global tycoon. I doubt whether luxury is actually ever going to go out of fashion because people want to display that they can afford whatever it is.

38:29Neil Collins: Louis Vuitton luggage. So as soon as it disappears on the carousel, it says steal me on it. But people seem to like it. Then you need to buy a new one. Probably they just put it straight onto their private jet. People's appetite for this seems to be infinite. I find it extraordinary. I'm surprised to hear you say you're not somebody who believes in luxury goods, given I was looking at that flowery shirt you're wearing and wondering if that was an original Dior or not. I don't think so. It's extremely eye-catching. Anyway, I find him very interesting. But he's sort of, as far as the banking is concerned, as you say, French banking is a bit of a snake pit.

39:14And it's also fantastically insidery, which to Arnaud is very helpful because he's able essentially by having allies in the system, he's trusted to get what he wants.

39:25Neil Collins: Helped by the fact that at the time, and indeed now, it's a much smaller village than the city. So the opportunity for finding good people in other places there is much less. In London, there's a pretty large portfolio of extremely able people who will say, well... Some of them French. If you do that... Yeah, quite a lot of them French. That's why they're here. Who will say, if you do this, that will happen. Yeah, I think the lesson from France is you need to be a good friend of your banker. So when many years later, he wrote his own autobiography, which is unsparing in its criticisms. Required reading.

40:06But when he sent it to Bernheim, he sent a copy to Bernheim. Bernheim died about 10 years ago. He was very disobliging about honour. He said he was very ungrateful. When Arnaud sent Bernheim a copy of his autobiography with a little note in the front saying, to Antoine without whom all of this would not be possible or something along those lines. Bernheim was very unimpressed. He said, that's not good enough. You should have written that this book shouldn't be about him. It should be about me. I think he's absolutely right.

40:38Neil Collins: You know, I mean, you shaft the customer, you get what you deserve. Well, there we go. That was A Long Time in Finance with Jonathan Ford and Neil Collins. production and editing by Nick Hilton if you enjoyed the show please rate and review it on your podcast app as that will help new listeners find us