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The handbag wars are growing nastier by the day. The story so far: French luxury goods group LVMH has built up a 22 per cent stake in rival Hermès, which is unhappy with the stakebuilding and has complained about the way in which most of it was disclosed in 2010. Cue a potential €10-million ($13.5-million) fine for LVMH from the French regulator and lawsuits and rancour on both sides.

LVMH shareholders can only stare in wonder at a stand-off that is unlikely to be short. For its part, LVMH says that it is a long term shareholder in Hermès, that it has made a decent amount of money (the value of its investment is up by 170 per cent since 2010) and that it has no intention of interfering with the way Hermès is run. And it has a record of holding on to investments it likes. Diageo has been keen to buy LVMH's 66 per cent share of their Moët Hennessy joint venture for years, without success.

Still, LVMH shareholders have a right to ask what they gain from having €6.5-billion tied up in Hermès. After all, if they wanted to own Hermès shares, they could buy them on the open market. Given the antagonism between the companies, it is not likely that the investment will lead to operational synergies. And with 70 per cent of Hermès still in the hands of the founding family, an outright acquisition is hardly on the cards either. Even if it were, LVMH might struggle to justify the terms – Hermès trades on 34 times forecast earnings.

But selling would not be easy. LVMH owns three quarters of the non-family shares of Hermès. Selling that stake into the market could depress the price and wipe out some of the gain. It could also leave the way clear for a rival to snap up the shares and form a close and possibly dangerous commercial relationship with Hermès. Besides, LVMH has no pressing need to raise cash. Best settle in for a long soap opera.

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