Do Champagne and Luggage Mix?

By Adam Zagorin/Paris

In corporate terms, it is the equivalent of a high-society marriage that has unexpectedly turned up in the gossip columns. Moet-Hennessy, the esteemed producer of champagne, Cognac and perfume, agreed in June 1987 to merge with Louis Vuitton, the equally upscale maker of luggage and handbags bearing the distinctive LV trademark. After the deal was signed, the top executives of the two French firms raised champagne glasses to toast their new creation, LVMH Moet Hennessy Louis Vuitton, one of the world's largest luxury-goods conglomerates (projected 1988 revenues: $2.6 billion).

But no sooner had the company been formed than a struggle for control broke out between Chairman Alain Chevalier, 56, who had been head of Moet-Hennessy, and Vice Chairman Henry Racamier, 76, former chief executive of Louis Vuitton. At times the dispute has threatened the viability of the merger. "When there is a crisis in marriage," said Chevalier, "either you get divorced or you put the pieces back together."

Now the two sides hope they have found a way to save the marriage. Chevalier and Racamier have agreed to turn control of Moet Vuitton over to a newly formed twelve-member supervisory board consisting mainly of major investors in the company. To run day-to-day operations, the supervisory board will appoint a management committee of up to seven members that will include both Chevalier and Racamier. The old titles of chairman and vice chairman will be done away with, and the two men will have an equal voice in management.

Shareholders are expected to approve the management shuffle next month. "We're looking forward to getting back to business in a new atmosphere of peace," says a company spokesman. But there is no guarantee that rule by committee will ensure tranquillity. "Unless they finally work out their problems," notes Michelle Proud, an analyst with London's County NatWest Securities, "this couple could find their marriage is on the rocks."

The tension between two of France's most successful -- and strong-willed -- business leaders was probably inevitable. Chevalier is a dapper former steel executive who arranged the original merger of the Moet champagne concern with the Hennessy Cognac empire in 1971. Under the reorganization plan, he will continue to represent the interests of the Moet, Hennessy and related families, which together control 20% of the company. Racamier, another former steel executive, will speak for the Vuitton interests, which control 30% of the merged firm. Married to a Vuitton heiress, Racamier led the concern for the previous decade and propelled sales from less than $15 million in 1977 to more than $380 million in 1987. He engineered Vuitton's purchase of Veuve Clicquot champagne and Givenchy perfumes in March 1987, and last June agreed to acquire Givenchy fashions this fall. From the start, Chevalier and Racamier had trouble accepting the notion of a true merger of their companies. Each man continued to maintain a personal fiefdom, with separate corporate staffs, public relations departments and financial advisers. Then, last May, heavy trading in Moet Vuitton shares on the Paris Bourse signaled that the company would be vulnerable to a takeover attempt. Chevalier responded to the threat by calling on a friend, Anthony Tennant, president of Guinness PLC, the powerful British drinks group that markets Moet-Hennessy brands around the globe. Guinness was asked to take a 20% stake in Moet Vuitton as anti-takeover insurance. Racamier opposed the alliance, fearing that it would jeopardize Vuitton's independence. "I had no objections to Guinness taking a moderate stake," he says, "but not as much as 20%."

In June, Racamier began to grumble publicly about competing corporate cultures within Moet Vuitton. He expressed fears aloud that the marketing of Cognac and champagne, some of which is sold through "mass distribution in supermarkets," would "contaminate" Vuitton's upper-crust image. To balance Chevalier's move toward Guinness, Racamier then made overtures to his own outside investor: Bernard Arnault, 39, whose group, Financiere Agache, controls the Christian Lacroix and Dior fashion houses. Following protracted negotiations, Agache and Guinness took a joint 24% stake in Moet Vuitton, with Agache holding the lion's share of the investment. Arnault, who is expected to sit on the Moet Vuitton management committee, plans to increase that stake to 30%.

Through all the turmoil, Moet Vuitton has built an impressive sales record. Revenues for the first six months of 1988 were $1.2 billion, a 29% increase over the same period last year. Luggage sales rose 58%, wines and spirits 53%. Moreover, the company has ambitious expansion plans. Vuitton expects to introduce new pens, watches and silk scarves in the fall, and its Givenchy- perfume subsidiary is readying a line of health-care and makeup products. Moet intends to market moderately priced sparkling wines in Spain and Australia. As such projects unfold, Moet Vuitton's enormous growth potential may provide Chevalier and Racamier just enough incentive to keep their company together.