If you want to go fast, run alone. If you want to go far, go together
familyandtrends has recently used Hermès as an example to understand the principles of ownership and to explore the link between the stock exchange and the liquidation of a family branch; in both cases, H51, the holding company created to defend itself against a hostile takeover by LVMH, was mentioned: this may be useful to explore whether it is worthwhile for an individual family member to contribute his or her shares in the family holding company.
In the early stages of business start-up, shares are seldom included in a corporate structure, and when the time comes to contribute them to the holding company, it is never easy to convince all the family shareholders. The motivation is understandable, owning a company directly is different from owning a holding company that owns the company, you give up some 'freedom of manoeuvre'. In the words of Nicolas Puech, the main family shareholder of Hermès, who refused to give his 6% stake in H51: 'To tie our shares in a holding company would deprive family shareholders of their individual power of control over the management of the company... the freedom of each shareholder is the best way to guarantee our unity in the long run'.
Holding a controlling interest in a holding company is, however, an advantage for the entrepreneurial family shareholder, the entrepreneurial family being the institution made up of all family members.
A first fact that should convince family members who think like Puech is that in the case of wanting to sell the company, together they get a better price, due to the majority premium that can vary between 20% and 40%. To explain this logically, one can use an example that Brandenburger, the inventor of the theory of value, the one used by many super-advisors to justify not contributing to the family holding company and which instead is the basis of why one should contribute, usually gives in his first lecture.
Brandenburger says: 26 students have a red card and the professor 26 black cards, outside the classroom the rector will give $100 for each pair: how much is the value that can be created? 2.600$. Who gets the value? Logic suggests, and usually a brief classroom debate confirms this, $1,300 to the students ($50 each) and $1,300 to the professor (who has 26 cards). How could the professor capture more value? By tearing up two black cards before starting the negotiation with the students: this way the students know that two of them will be left without a dollar and will be willing to sell their card for less than $50. In the classroom, the average price of red cards usually drops to around $35/40: in this way the professor captures $1,440/1,560 while only handing over 24 pairs to the rector [24x(100-40) or 24x(100-35)]. It is sufficient to replace the students with the individual members, the professor with the buyer. It thus becomes clear that only those family members who sell before the buyer reaches a majority will get a good price, those who remain will be irrelevant.
