Bernard Arnault (The Richest Man in the World)

1. 0:00 – 4:18

   The Takeover of LVMH and the Book Behind It

   1. DSDavid Senra0:00

      I'm the boss. I should be here on Monday morning, and I should be running the company in person. LVMH had entered a new chapter of its history. Bernard Arnault had taken power. He did not realize how harsh his words sounded. That was not the type of thing that he cared about. For him, the stakes were altogether different. Yesterday, he had taken over Boussac, the ailing textile empire. Today, he was in control of LVMH. A few days before his 40th birthday, this youngster was at the head of the most expensive company in France. As chairman of the world's leading manufacturer of luxury goods, he now owned the most prestigious French brands, Christian Dior, Christian Lacroix, Givenchy, Moet, Hennessy, and Louis Vuitton, all acquired in less than five years. He was the first of a new breed of capitalists. Friday the 13th, January 1989, was the day that he took office. The 15 people invited to witness the event at LVMH's head office were beginning to filter into the large conference room. They each had played a decisive role in this affair, which had all the makings of a Greek tragedy. They all knew they had no choice but to go along with Arnault. He quickly inspected those present. Only one was missing, Henri Racamier, the chairman of Louis Vuitton. This senile old fool, as he had started to call him, was really beginning to get on Bernard's nerves. He had to get rid of him as soon as possible. The noise of the door opening interrupted his thoughts. Racamier made an entrance. This was merely the first step. Racamier would fight to the end against this youngster, whom he had sought out a year before in the hopes of neutralizing the insufferably pretentious Alain Chevalier. This is the guy that was running Moet Hennessy before it, uh, merged with Louis Vuitton, a mistake which had backfired on him. But Racamier had no intention of letting himself be pushed around. This 76-year-old was thirsting for revenge. From now on, he would wake each morning vowing to topple Arnault. If he had one quality, it was perseverance. At 11:30 AM, a triumphant Bernard Arnault arrived at Moet Hennessy. He was anxious to personally check the text which announced his election. Two draft press releases had been prepared. The first and longer one paid homage to the previous management. The second simply announced the appointments without any frills. Bernard chose the second. He took out a pen and struck out the words of praise for the former managing director. Reading through it again, Bernard added, "Elected unanimously," alongside his name. He attached a great deal of importance to the unanimous vote, which meant there was no doubt about his position. A few minutes later, the news hit the financial markets. Bernard Arnault was chairman of LVMH. Nothing could stop him. That was an excerpt from this unbelievably difficult book to find, and the one that I'm gonna talk to you about today, which is The Taste of Luxury: Bernard Arnault and the Moet Hennessy Louis Vuitton Story, and it was written by two French authors. I have no idea, unfortunately, how to pronounce their names, but I will leave their full names in the show notes. And before I jump into the book, I need to thank my friend David Rosenthal from the excellent Acquired podcast. He actually found-- This book was first published in 1992 in French. Th- I've only found one other copy. The one copy that I can find that's for sale right now is $3,000. David paid almost $400 for this book, and he gave it to me for free so I could make this episode. So to prepare for this episode, in addition to reading this entire book, I also listened to David and Ben's excellent Acquired episode. It's called LVMH. I will leave the link down below, or you can just search in your podcast player for Acquired, and it should be easy to find their episode. It's titled LVMH. It's, like, three and a half hours long. Um, it tells the entire history, the entire history of how LVMH came to be. I took notes on their episode, and you should hear some of those notes in this episode today. In addition to that, I also listened to the excellent, uh, episode of Business Breakdowns. It's titled LVMH: The Wolf in Cashmere's Conglomerate, and that business breakdown is about what LVMH looks like today, their business models, and their financial performance. And I, of course, am going to focus on Bernard Arnault the person, as I always do.

2. 4:18 – 10:19

   A Studious Childhood and a Rockefeller-Like Temperament

   1. DSDavid Senra4:18

      Let me go right into Bernard's early life. He's born in France in 1949, and he's the son of a building contractor. He's the third gene- He's gonna wind up being the third generation in this family business. His father, Jean, was successful. Life was comfortable without being ostentatious. Sometimes Bernard would stand in the hall gazing at a portrait of his ancestor, whom he apparently resembled. This ancestor was a colonel in the Napoleonic guard and had served in all the emperor's campaigns. If, in case you missed it, I just did a first of many ser- h- many episodes I'm gonna do on Napoleon, 'cause Napoleon just pops up again and again in these. If you're reading biographies on history's greatest entrepreneurs pre-World War II, they're gonna conferency- constantly reference their studying and their admiration of Napoleon. That's episode 294 if you haven't listened to it. I just got a fantastic book called The Mind of Napoleon, printed in 1955. It arrived a few days ago, so I'll do an episode on that, um, soon as well. So in the book, it starts out, okay, we got this young, studious, driven... I guess I should tell you this upfront, that I didn't understand till I read this book and then listened to both the Acquired and the Business Breakdowns episodes. The-- What pops out into my mind is, like, Bernard is, like, this, uh, odd combination of, I would say, uh, Warren Buffett and a John D. Rockefeller. And if you listen to my episodes on Rockefeller, I think I've done three or four at this point, you'll, you'll see, like, there's a lot of parallels in his life other than Rockefeller was poor and, uh, and Bernard was not. But it's this just idea where, like, it's, like, all work, no fun. So we just have this young version of, I think he's like 10 years old at the time. We have young Bernard just looking at this picture of one of his great ancestors, right? So it says he was an excellent pupil. Uh, he was in the top of his class in all other s- in all subjects, including PE. The boy would listen attentively, a habit that he was never to lose. That sentence reminded me of one of my favorite lines that I've heard in any of the biographies that I've read came from episode 213 in Michael Jordan's autobiography. Michael Jordan says, "Successful people listen. Those that don't listen don't last long." Following World War II, his grandfather, Savinel, obviously, you know, you know if you listen to a bunch of these, I can barely pronounce English. There's no-- These are all French names. There's just no way I'm getting this correct. I sat and listened to correct pron- pronunciations over and over again to no avail. It's just better if I just spend that time reading instead. Uh, so his grandfather starts this engineering and building company, and he does it in France after World War I because everything was destroyed in France after World War I, so everything has to be rebuilt. Bernard is going to work in this company that still exists when he's a young man, starting with nothing, they're talking about his grandfather, except his wheelbarrow. Uh, he teamed up with another guy that his, his partner who supplied the capital and began to build on the ruins. At that time, textiles, this is crazy, at that time, textiles were the wealth of the north of France, and Marcel Boussac was at his peak. Bernard's grandfather's company built a factory for the textile king. Now, why is that crazy? Boussac is going to be the company that 35-year-old Bernard buys. Boussac w- and the reason he buys it is because it's this, this, uh, conglomerate that is now taken over by the French, uh, government. It's losing a ton of money, and one of the assets that this conglomerate has is Christian Dior. Bernard targets Boussac because he wants Dior. That is the first in a chain of events that's gonna eventually lead him to overtaking and taking over LVMH. Let's go back to his childhood. I just gotta pull some quotes. I went looking 'cause, uh, he's got a fantastic quote spread over the internet, and he says, "I'm very competitive. I always want to win." The way I would describe his childhood is work, work, work, and more work. He was reared on his grandmother's stories. The s- the studious young, uh, Bernard did not like play like other children. He did not like playing. That is repeated in different sections of the book. What Bernard liked as a child was the quiet, studious life he led at his grandmother's. He loved work and music. While his friends from the pre- from his preparatory class were living it up, Bernard worked. You-- And this is ano- one of his great quotes, or it gives you an in- indication, like, the reason, um, I wanted to go around collecting his quotes in this book and otherwise is 'cause it really gives you an insight into his personality and who he is, and this is exactly what he does. "You have to be specially gifted, or you have to work hard," he said. "I was not gifted enough." That's a lie. Uh, "I was not gifted enough. I had to work, so I worked." He's both unbelievably gifted and unbelievably hardworking. "You couldn't compete with him," said one of h- uh, one of his closest friends. "It wasn't worth it. He was quicker to grasp things. He went at a faster pace. You either detested him or found him charming. A lot of people were jealous of his abilities." So even when he's in college, this whole idea of work, work, work. Let's get this done. Let's get big fast. Let's get on with what we're trying to do in life. He has this rare combination of, uh, he's intolerant of slowness, and he has an unbelievably long-term view, um, that I think is very be- has been beneficial. Remember, this book ends, wait till you get to the end of the book what he says. He is 42, and what he says is ridiculous in the sense that he could think he could ever stop, and we see that, you know, what he's done multiple decades since then. But he's in college at this point, and he has to take this, uh, c- training course that was, uh, with McKinsey, uh, the management consultants, and he did not like it. He says the very idea of a training course seemed frustrating to him. "You watch, but you don't do anything," he said, "and what I'm interested is in doing." He was 22 and in a hurry. He had never really considered anything else since his childhood. "I always wanted to manage a company. I never wanted to do anything else." This reminds me, uh, of a young Paul Allen and a young, uh, and a young Bill Gates sitting there reading, I forgot what it was, like, Forbes magazine or Fortune magazine. I think they're, like, 12 or 13, and they're thinking of, "Oh, my God, one day, do you think we'll be able to run a company?" And so this idea where he's like, "You know, I never wanted, uh, to do anything else but manage a company. I knew this is what I was gonna do," what I wrote down in the margin as well. There's no way that this guy was gonna retire at 70 years old. And what I found fascinating about this is you have the same description of Bernard since the time he was a really young kid when he's in, like, primary school and college. Now, he's out of college, and he's working. It's just like, okay, this guy works unbelievably hard. He's exceptionally bright. That is another quote here. And we also see that he has a lot in common with not only Rockefeller but a lot of history's greatest entrepreneurs that you and I study.

3. 10:19 – 10:32

   Discretion, Relationships, and Management Style

   1. DSDavid Senra10:19

      Bad boys move in silence. Nobody realized that he was married. He did not wear a wedding ring, and he kept his own counsel. The day his daughter was born, not even his own secretary knew about it. He believed in extreme discretion.

4. 10:32 – 16:45

   Selling the Family Firm and Going to America

   1. DSDavid Senra10:32

      So he's working in his dad's company, and he does something that, this is if you listen to the episode, uh, episode 295 titled I Had Dinner With Charlie Munger, something I got to talk personally with Charlie Munger about was this idea, it's really important, and something that Charlie Munger did, something that Ben Franklin did, something that Andrew Carnegie did. They purposely sought out other high-performing, intelligent people and made relationships with them. This is just the first example of many, many times Bernard's gonna do this in his career. He's working, uh, with Pierre G- uh, Pier- I don't know his name. Pierre Goude? I'm just gonna call him Pierre. He's working with Pierre. They say Pierre at this time in, in, uh, Bernard's, uh, career is his alter ego. Uh, initially, relations between Bernard and Pierre were distant and purely professional. People had, this is the reason, this is the entire reason I'm reading this section to you. People had to prove themselves before they won Arnault's confidence. They had to be good, and they kn- and they had to know how to stand up to him when they were sure of their case. And so on these Post-it Notes, I probably have, I don't know, 50 Post Notes throughout this entire book. I wrote down relationships, relationships, relationships over and over again. We see this, that this is something that Bernard's gonna do for the next two decades to when this book ends. Probably still does it to this day. He's just constantly building relationships with, relationships with people that are very similar to him in the sense of, like, driven, talented, and can help him acco- achieve his goals. Go back to, then the, the book goes into great detail about what I would consider, like, his personality and management style. This is what I meant about Rockefeller. He is very Rockefeller-esque. He had perfect manners, so did Rockefeller. He hates intimacy, so did Rockefeller. He does not have friends, only loyal followers, so did Rockefeller. And then Bernard's gonna do exactly what Rockefeller did early in his career when he jumps into the oil industry at first. At the first, he's, like, on the fields. He's learning everything about it, and then he steps back and becomes this, like, master strate- uh, strategist. Uh, Bernard visited sites, talked to the subcontractors, and learned his trade as a contractor. Very quickly, he began questioning everything. So did Rockefeller. Demanding some-- He was demanding and sometimes difficult to follow. And as we see, he had no plans to stay in the construction and engineering business, even though, um, I think it was both on the, uh, uh, the acquired episode and the business breakdown episode where they talk about that Bernard is very much like an engineer by training. He had this, like, unique combination of an engineering mindset and an artistic mindset, and there's al-also quotes that he said later in his career that, that give you that indication as well. So his dad does something actually really smart, knows his son's talented, kind of willing to go along with him, and it's-- [chuckles] Bernard is also this financial genius, right? This is-- There's definitely a, uh, a Warren Buffett aspect to him that I didn't understand before I read this book or listened to those two episodes. And so he's actually gonna sell his dad's company. And it says, "Jean Arnault's feelings for this disruptive son of his, whom he often had to rein in, were a mixture of affection and anxiety." [chuckles] That's hilarious. "He had not the slightest intention of selling his company. However, he let himself be convinced by the size of the contract." Bernard goes and sells this company for forty million francs. For the small provincial business, this was a great deal of money. He stepped aside and gave his son carte blanche. This was to be the start of the family's fortunes. Bernard then set up a development study, uh, subsidiary." B- I'm not gonna go into that because there's so many... This, uh, the, the, the construction of his businesses are so difficult to understand that there's multiple times where the authors find it prudent to print out flowcharts [chuckles] of all of the different companies and how they interact with each other. And so the reason I wanted to bring up the development subsidiary is because what happens after the fact. So it says, "Within five years, his company had become the leading French property develop, developer, uh, for private houses. Success came with the decision to sell holiday homes, a good knowledge of building, and a careful use of marketing and advertising techniques. But the important part was his managing style, which he still holds to this day. Success came through the demands made by the owner on his employees. One day, he was driving with one of his executives, who complained he had too much work and could not do what was asked of him. He thought he had convinced Bernard, but when they arrived, Bernard said to him as if the conversation had not taken place, 'You do agree to do what we talked about, don't you?' Another day, Bernard had a file for a property deal on one of his employee's desk at midday. At 2:00 p.m., two hours later, he called and asked him how much he had sold." So unbelievably demanding, wanting to move fast, wanting-- There's no limit to his ambition. As we see, you don't become the richest man in the world if you had that. And we see that even-- He's in his, like, mid-20s, I think, at this point. And it says, uh, "Beneath..." This is, this-- He says, "The su-the success that he was having." So he might be, let's say, late 20s, maybe early 30s at the most. Uh, "The success of this company was not enough for Bernard. Beneath his civilized appearance, there lurked the spirit of an adventurer. He wanted more." So he decides, hey, France is not big enough. He's gonna go to the, to, to the business mecca in the world, right? He's going to go to the United States. It is hilarious, uh, later on, right? He, he's running... I think the, the biggest export of the French economy to this day, um, is luxury goods, and he is viewed [chuckles] very much by the French establishment not as a Frenchman but as an American. And so this is, like, the beginning of that. So it says, "He took to look for, uh, investment opportunities elsewhere. He headed for a country, uh, which he had loved, the United States." So he winds up moving there, and then he winds up living in this neighborhood in New York, and it says, "While he was jogging in the mornings, he would pass his next-door neighbor. It was quite a surprise when he learned from the front page of The Wall Street Journal that his neighbor was none other than John Kluge, the multimillionaire who had made a, who had just made a takeover bid for the communications conglomerate Metromedia." This book says multimillionaire. When I listened to the acquired episode, I think John w-was one of the richest, if not the richest, people in the world shortly after this. Um, he winded up making-- He was doing, like, these leveraged buyouts and I think these, like, takeovers, and I think they said... In this book it says multimillionaire, but in the episode, in the acquired episode, they said he made, uh, five billion dollars, I think, on that deal. This is important because Arnault's gonna use some of these techniques. This is why I'm giving you this background. "Kluge embodied everything Arnault admired. He was a nationally successful businessman. His audacity in business and his display of wealth combined with a certain simplicity in his private life." That's why he's looking up to him. "He want-- Bernard wanted to go far. He had an iron will. At a laboriously won..." Oh my goodness, this needs to be a T-shirt. "He wanted to go far. He had an iron will. At a laboriously won tennis match, he once said, 'I may lose once, but I never lose twice.'"

5. 16:45 – 23:55

   Targeting Boussac and Waiting Out the Willot Brothers

   1. DSDavid Senra16:45

      So it's at this point he decides to go back to France, and he calls Pierre, and he says, "It's time to go to France and buy a company. Find me one." He chose Dior. "There isn't a better name. In the United States, the president of Dior is better known than the president of France," Arnault said. And just as a quick aside, the chapter titles in this book are excellent because they're all descriptions of Bernard, and so this one is called "A Burning Ambition." And this is th-the perfect timing, uh, because this is the 1980s. In the crazy '80s, there's all a bunch of buyouts, takeovers, LBOs, raids. This is all pre, uh, LVMH. So Boussac at the time, which is the, the large conglomerate that I referenced earlier that his grandfather happened to build the textile mill for a long time ago, was the largest industrial bankruptcy, bankruptcy in Fr- in French history at the time. And the public authorities in France are anxious to rid themselves of a business that was losing them 100 million francs a month. And so these are just some of the assets that are inside this giant money-losing empire. I wonder if I should find a book on the founder. Uh, it says, "It all began in nin- in 1978 with the collapse of the Boussac empire. The man who had invented pajamas," that's odd, "and discovered a young fashion designer, Christian Dior, and who was one of the six wealthiest men in the country, was unwilling to modernize his factories, far less lay off any of his workers. He had to sell his stud farms," so I guess those are horses, "his chateau, and his newspapers. All that remained of the depleted empire were assets in the declining textile industry," which, uh, just like Buffett, uh, eventually Bernard's going to sell off, "and one jewel, Christian Dior." And so there's a bunch of other potential buyers for this. There's a bunch of lessons spread across the next few pages. Here's the first one, something you and I have talked about over and over again in the p- in the past. It's one of the greatest quotes from entrepreneur history ever. You see it over and over again. It's from Henry Kaiser. "Problems are just opportunities in work clothes." Bernard had become the most serious would-be buyer. He saw problem cases as a challenge. After all, companies that are in ruins hold the greatest surprises and bring the greatest profits if they can be pulled around. All you have to do is delve into them deeper than anyone else and work on them without leaving anything to chance. That description, d- delve deeper than anyone else would and work on them without leaving anything to chance, that sounds like a description of Bernard the person. Number two, uh, in getting Dior, he's gonna g- want... H- his sights are set. Like, this, I, I referenced, like, the, the Terminator-esque feeling that you get when you read about Rockefeller. I felt the same way when I'm reading about a young Bernard. Like, it's just like I have my eye set on this thing, and I'm just going to do whatever I can. I don't care if... Whatever barrier you put up in front of me, I'm gonna figure this out one way or another. And in this case, his first objective is like, "I'm gonna get Dior one way or the other." And he tries to buy it piecemeal. He's like, "I'd rather just have Dior. I don't want all this other Boussac stuff." But you said no. Okay, that's fine. I'm gonna get Dior no matter what. Uh, so it says, uh, he put forward his proposal to take over Dior. Out of the question, they said. It must be all or nothing. No matter, all it would be. "You are quite mad," his father told him. And then one of his other advisors say, "Hey, why don't you take the first plane back to United States?" They thought this was crazy. And so the people that are telling him, "No, you have to buy the whole thing. You can't buy Dior," are the ones that actually own Boussac now, even though they're losing a bunch of money. It's this, I think there's, like, four brothers. They're called the Willots. Really, you don't have to remember that. It's not important to the story. What is important to me, or to the story, rather, is if you are the one with cash, time is your friend, right? These guys own this company, but it's, they're just getting drained constantly. They have pressure from the fresh government, French government to figure this out. And so Bernard's like, "Okay, I'll just, I'm just gonna wait. I'm gonna wait you out." So it says the brothers arrogantly stuck to their guns. Arnault convinced that as time passed, the brothers' position would become increasingly untenable. This is exactly... So when I wrote, when I got to this section, this is something that, uh, Charlie Munger said at, at the dinner. He says, uh, "We made a lot of money because we always had a lot of cash, and we could move fast." And his point there is, like, he's told some stories about this, like, you could have an asset that's hypothetically worth $2 billion. There's some kind of either the blow-up of a, a, an individual company or, like, this large recession, and suddenly you picked up something for 450 million that's worth 2 billion. It's, if you have cash, time is your friend. You're gonna be able to wait these people out, and this is exactly what happens, uh, in this situation. Going back to the Terminator, right? Arnault was determined. He wanted Boussac, and he was going to get it. He would apply himself to the task of attaining the support of the public authorities who would choose the buyer. So this is the first thing, uh, first time I wrote down what I mentioned I have on a bunch of Post-it notes. Relationships, relationships, relationships. This is an, uh, uh, an attack vector that Bernard uses over and over and over again. Next page, I wrote in giant capital letters, "Never underestimate." It is all downside and no upside. This is something else that repeats in human nature over and over again. You and I have seen it in multiple stories. They, they don't take him seriously. There, there's other buyers that are like, "We don't have to worry about this guy. Who is he? Like, we're gonna win this." And that's the problem. There is... I, I even adopted this, like, to change my behavior. It's like, first I try to limit, like, uh, uh, like dealing, doing deals outside, you know, with external people. But if I did, I would just assume, like, okay, that person, even if they're sh- showing no signs that this is true, just think that that person's a, a secret genius, that they know way more than you. This idea where you're gonna underestimate them, like, "Oh, I'm smarter. I'm gonna beat them," or in other cases, like, okay, like, maybe they might be hiding something. The point is, even if it's right, it's all downside and no upside. What's the point? Just, I would do the reverse, right? They'll never give Boussac to a 36-year-old property developer living in the United States, trumpeted this other buyer, sure of himself. Everyone underestimated Bernard. That's exactly what's gonna happen, man. Why? What's the point of underestimating somebody? Arnault remained inflexible. He wanted control. There was no question of his becoming, uh, the brothers' partners. These are the Willots. They're like, "Oh, no, you know, we don't wanna sell this. There's, we're four brothers. We just want a fifth brother." That is a consistent theme throughout life of Bernard. He is a dictator. He is going to be in control. You're out of your mind if you think you're gonna partner with this guy. Uh, going back to first they criticize you, then they copy you. I got a great quote about him I'm gonna read after this. Everyone discouraged him. Remember they said, "Hey, you're crazy. Get on a plane." Oh, they're not gonna sell it to him. Everyone discouraged him. They're telling him, "Oh, don't get involved." These are all different quotes, right? Spread out over multiple pages. Everyone discouraged him. "Don't get involved. You will n- you will fare no better than your predecessors. You won't last three years." And this is how you know we're dealing with somebody unique and different. Listen to his reaction. Far from discouraging him, this consensus of opinion acted as a stimulus. That is a sign that you're dealing with somebody that has put the work in necessary to trust his own judgment. Later in life, this is what he says. "I remember people telling me, 'It doesn't make sense to put together so many brands.' And it was a success. It was a recognized success, and for the last 10 years now, every competitor is trying to imitate. I think they are not successful, but they'll try." Again, first they criticize you, then they will copy you. A few pages ago, I referenced this idea, hey, if you're the one with cash, time is your friend. Turns out that was correct. Negotiations were broken off. You know, they're fighting. They can't figure it out. However, the following day, the situation changed again for one essential reason. The tribunal, this is the French government, was to announce liquidation on November 16th. The Willots had their back against the wall, and on November 14th, they signed the agreement. And so now that Bernard has this agreement signed with the brothers, he goes and does

6. 23:55 – 30:54

   Winning Over the Authorities and Turning Dior Around

   1. DSDavid Senra23:55

      relationships, relationships, relationships. He goes and actually tours all of, starts building relationships with all the important decision-makers inside the French government to hold off liquidation. So it says, as soon as the agreement had been ratified, Arnault and his partner went to the Ministry of Justice. Uh, the two men did the rounds, uh, of all the ministries to convince them. Methodically, the two men toured the Ministry of Industry, the Ministry of Finance, the Ministry of Social Affairs. Tirelessly, they explained and argued, trying to persuade the various advisors that they were serious and that their plan was feasible. And this was not easy. They had reservations about how able an industrialist he was. Remember, he's really young at this time. How solid his financial backing was. Here, too, Bernard surprised everybody. This is not somebody... I just, it just hit me now reading this, th- these, usually I read the highlights several times before I sit down and talk to you. Like, this, this is exactly how he gets into LVMH. He's underestimated by the guy that he's fighting at the very beginning of the book, Recamier, where he, he's like, "Oh, we're old. Let's bring in, let's bring in..." W- they're trying to off- I'll get to this later, but they're trying to avoid a, a hostile takeover, so they want some allies. That's why he's called the, you know, the wolf. Um, and they're like, "We're old. Maybe this Bernard guy, he thinks like, uh, about this industry like we do. Uh, maybe he can succeed." Yeah, he's gonna succeed you, but he's gonna be like, "Oh, that's a nice business you have there. Uh, I'm not gonna wait five years, 10 years. I'm going to actually control it now." And so that's another example of somebody underestimating him. This is amazing. So it says, uh, "They had reservations about how able and industrious he was, how solid his financial backing was. Here, too, Bernard surprised everyone. He would gain the support of some of the biggest names in Fran- in French finance." One of those is this Lazard bank. It still exists to this day. It's mysterious and powerful, let's just put it that way. So th- they play a huge role. His mentor is actually, uh, very, plays a very important role and works at Lazard for that. But the reason, the details, I guess, aren't, aren't too important. It's, it's this idea of, like, building relationships and gaining support, doing, like, you have to be an impressive person first, right? Bernard is, impresses everybody that meets him, and that makes it easier for him to gain support of powerful people. There's a line from The Tao of Charlie Munger, which is what I also covered in the last episode, where Charlie can't get into, to, he's rejected to Harvard Law School. He has a friend that used to be, like, the former dean that lives, just happens to live in Nebraska. He makes one call, and suddenly that rejection is reversed, and his takeaway, Charlie's takeaway from that was that he had never forgotten the importance of having friends in high places. I would say Bernard intentionally cultivated relationships with people in high places, and his career and work benefited enormously from doing so. And so now Bernard is the owner of this ailing giant empire that's losing a bunch of money. He's gonna make quick work and turn that around. I think in a couple years from now, uh, on the Acquired episode, they said he was, within, like, two or three years, took a failing asset and wound up producing, like, 100 million in, in cash flow. But the one thing that he's focused on, and th- this is the really lesson, I think, to you and I, is this, like, a powerful brand is magic. If you have a powerful brand, all these other things can be fixed. I don't know if Bernard knew that at this point in his career, but he damn sure knows it now. Bernard had understood that Dior was a jewel in the crown of this group. Dior was to be the starting point for his strategy. It was, Dior was a famous name, but they had innumerable difficulties. So it's just poorly run business, essentially what they're saying. They have too many licenses, not enough boutiques. Their ready-to-wear, uh, collection had been a failure. They had a troubled atmosphere, a bad culture. It was impossible to manage the patchwork of 260 licenses worldwide. All this, essentially just listing all these problems that Bernard has to solve. But again, a powerful brand is magic. All these other things can be fixed. But you can't just snap your fingers and say, "Let me create a powerful brand." He's got something that's rare and very differentiated and valuable. It was impossible to manage the patchwork of 260 licenses worldwide, which detracted considerably from the image that a company like Dior should project. Quality was lacking. And that is going to lead to Bernard realizing, hey, something that he continues to this day, he wants to own his own distribution. It's extremely important. It was valuable then, really valuable now. Before I get there, though, something else that popped out of the book that was very interesting is Arnault always bets on talent. Um, my friend Sam Hinkie has this great quote. He says, "People are really, uh, people really are power law, and the best ones change everything." And I think Bernard would agree with that. So he finds, he's introduced to this young, uh, designer named Christian Lacroix. I actually looked that name up. There's a funny, uh, video on, I typed in how to pronounce Christian Lacroix on YouTube, and it's just, like, two guys sitting there just repeating it over and over again. It was actually really, really funny. And one guy's French, so he has a way better accent than I do. So anyways, Bernard immediately sees, "Oh, this guy's special. I don't care. Like, I'll, I'll, I'll... He's so special, I'll make a plan for him." So it says, uh, Bernard was interested in this underappreciated designer. He was certain that he should not let Christian Lacroix slip through his fingers. That's exact- Rockefeller would hire people. Check this out. This is the same thing that's happening over and over again. It's crazy how similar these two are. Rockefeller would meet somebody, he thinks they're valuable, he would hire them just as, as meeting them, and worry about what to do with them later. He just knew that talent was everything. Uh, so it says they're gonna wind up launching this business together. Uh, they launch a great fashion house, and he invested 70 million francs down initially, and then they agreed to invest another 200 to 250 million francs over the next five years. Large point here, just remember, he always bets on talent. So let's go back to what I just mentioned, that he wants to own his own distribution. He is a learning machine. He's like, "This doesn't make any sense what Dior is doing. We're gonna change that." Learning from what he saw at Dior, Arnault made another choice. This strategy, the strategy of exclusive shops along the lines of what Chanel or Hermès, Hermès, is doing. Uh, a network of shops is now not built overnight. This took a long time to construct. This is what I mean if you hear him talk. He says, like, suff- Um, let me find the actual quote. Here it is. He says, "In business, I think the most important thing is to position yourself for long term and not, and not be too impatient, which I am by nature, and I have to control myself." So he's willing to invest on the long term, even if it goes against his nature. That speaks to his discipline. They talk about, you know, Terminator. Let's go back to that idea of, you have Bernard, Terminator, Arnault, Arnault, however you say his name. Uh, network of shops is not built overnight. It took a long time to construct. Well, he's still in the bus- That's good. That's, the investment, those investments reap and compound over a long time. Doesn't make sense if you're gonna get into a business, jump around, like most, uh, most entrepreneurs do. But Bernard's like, "Oh, I'm doing this forever. Like, I'm gonna stay in here, and I'm gonna build this thing, and we'll see how far it can go." And he did something smart. He did not... I always say, like, worst thing you could do is usually when people have a success, they let their foot off the gas, or they get comfortable. And the line that I, the maxim that's in my own mind to avoid that is, if you go to sleep on a win, you're gonna wake up with a loss. He did not go to sleep on a win. He's not gonna wake up with a loss. Arnault did not stray from his path. Relentlessly- He pursued his ascent and seized every passing opportunity. The note I left myself on that page is like Jeff Bezos, Arnault is relentless. Of course, we know Bezos owns relentless.com to this day. He almost named Amazon relentless.com, which is one of the things I love about Jeff. And this chapter ends with just one sentence. Bernard Arnault's upward mobility was gaining momentum.

7. 30:54 – 38:21

   Greenmail, Antoine Bernheim, and the Russian Doll Structure

   1. DSDavid Senra30:54

      So in the background, the environment that allows him to wind up getting control, eventually getting control, one of the, the, the things that helped him get control of LVMH is this fact that there is the deregulation of the market in 1984, uh, in the Paris. That the Paris Stock Exchange experienced a new awakening is the line in the book. This is what I mentioned earlier about the crazy '80s. Anybody that's studied this period knows it's just absolutely insane. Buyouts, takeovers, raids. Starts buying into, uh, LVMH I think in 1987, and has complete control by 1989, I think. Let's go back to the beginning of the book to make sure I'm right. Yeah, Friday, January 13th, January, uh, 1989. Okay. And we're also gonna see that Bernard, like most of history's greatest entrepreneurs, they use these economic downturns to expand. Most humans just run away. They're in bad financial positions. They cower, and the people that, uh, actually go against human nature wind up making, usually if they're picking good assets, usually make leaps and bounds in just a few years. So this is gonna hap- That's the, the, the crash in October 1987, which I'll get to in a minute. But I need to give you... He, he participated in corporate raiding. The benefit of reading this book after David did is that I get to see his notes. So he wrote that on that page. Thank you very much for the, the alley-oop there. So he has a friend, uh, I'm just gonna call him his French friend. I have no idea how to say his name. So his French friend became a specialist in a technique called greenmail. This consisted of buying a package of shares in a company vulnerable to takeover with which he n- renegotiated the buying back of the securities at a generally higher price. Uh, sometimes Bernard accompanied his friends in h- in these raids. And this is an incredible description of a young Bernard in contrast to those of his peers. His ambitions were not limited to getting rich quick. Capital, above all, had to serve his plans, which were beginning to crystallize. He had such an appetite for victory and such a capacity for work that he was bound to succeed. I r- I underlined that, that line twice. He had such an appetite for victory and such a ca- capacity for work that he was bound to succeed. His determined character attracted the attention of the biggest names in finance. So this goes back to relationships, relationships, relationships, and he's doing exactly what Ben Franklin, Andrew Carnegie, and Charlie Munger all did. They sought out high quality people. Bernard had the caliber of a great captain of industry. Remember, he's in his mid-30s, early 30s when this is happening. He was a skillful negotiator. He surprised his partners in discussion with his self-assurance and knowledge. Remember when he was 10 years old, all he wanted to do was study and work. See, he's still working like that. All the more impressive in one so young. He had earned his spurs as far as the banking establishment was concerned the day he bought all the shares, eh, from the Willot brothers. Uh, that, that episode was very revealing. And so I do not wanna overwhelm you with detail here, but I do think this is important because, again, this goes back to something that he just loves. He, he's gonna control as much of his business as possible, so he was raising money to buy out these brothers, and now he's like, "All right, now I gotta figure out a way to get rid of these guys." Uh, so he said he sought to establish his power definitively in Boussac. He had to ensure almost total control of the group and to break away from the grip of the banking consortium which had helped him at the start. If he did not, he would never have his hands free and would r- and would remain at the beck and call of the bankers. And as we've seen as his life plays out during and after this book, Bernard's not gonna be at the beck and call of anyone. In fact, I found this great quote of him online. Talks about the difference. He's like, he was, he really likes power. He, he likes power, and he thinks that business people actually have, uh, like, longer term power than politicians. People think of politicians having true power, but that's less and less true. After all, they are often constrained of being edged into a corner by a whole series of contingencies. I'm lucky in that I say I want my group to be in such and such position in 10 or 20 years' time, and then I formulate a plan to make that happen. He, this is what I mean. He, he's seeking out, you know, very, like, high quality people that can help his career. There's a list of these, but really I think the most important one is Antoine Bernheim. I'm gonna call him Antoine. It says Antoine is the true architect of Bernard's meteoric career. Antoine had made Bernard his protege and a favorite of the Lazard stable. This is what I meant about this, like, financial, total mysterious and powerful organization. The banker was undoubtedly the one who fascinated the chairman of Dior the most. This is the interesting thing, and maybe just because the, the book was translated from French, but so many times throughout the book it gets confusing because instead of using his name, they'll use the position he happens to hold at that time, but it always changes. It's like, just say who, uh, he was the banker who undoubtedly was the one who fascinated Bernard the whole time. And so we see that Bernard's getting this very valuable form of education, 'cause this banker, Antoine, is revealing to Arnault the workings of the financial world which he mastered with Machiavellian perfection. Of Bernard, so now he's, he, you have the banker, Antoine, describing his protege. Of Bernard, he said simply, "Believe me, he is very good." What did Antoine teach him? A perfect mastery of financial techniques. It's this Russian doll ownership structure that Bernard uses. In fact, the way to think about it, I think Ben from Acquired gave a, a great summary of this page. You can generate a ton of cash by selling minority pieces of each Russian doll. This generates huge leverage for Bernard. So it says, what did Antoine teach him? Instead of having the majority, that is 51% of your money in, of capital in company A, it is better t- better to have 51% in a purely financial company B, which itself then holds 51% of company A. One therefore also has control of company A by dividing the initial capital outlay. This reasoning can be continued infinitely. That sounds confusing. They give you the great, a great metaphor here to understand it. The basic concept of techniques is called cascades. Russian dolls are even stovepipe hats, and it is old as the world itself. Why is this important? Because it allows targets to be attacked, which are much bigger while avoiding the initiation of a costly takeover bid. A method tailor-made for the French market at this point in history, that's important to point out, for the French market and for the appetite of Bernard Arnault. Uh, so it says the, the magic formula did exist. It was the stock exchange. So next time, instead of counting on the financial support of investors, which is what Bernard did to get control of Boussac, he would take the capital of his various companies to the stock market. Each call on the market would provide him with his initial capital outlay. The best way of orchestrating takeovers was with other people's money. The small shareholders, who he's now bringing in, would thus replace the bankers, who he's trying to get rid of, of his earlier operations. Here is the, the main punchline. This compartmentalized structure turned out to be a veritable treasure chest. Each time that he needed money, Bernard put one of his subsidiaries on the stock macket- stock market without losing overall control. So then a few pages later, I'm reading about Bernard, and this is what popped to my mind as I get to the section. He is a financial genius and a dictator who's obsessed with efficiency. Bernard was one of the best financiers of his time. He loved buying, restructuring, buying again in order to restructure again. Behind his angelic appearance, there lurked an authoritarian proprietor. His managerial credo became American-style management. That's what mentioned earlier, uh, how the French establishment views him very much as an American. Uh, he was not worried about charisma. What mattered with him was efficiency. This new type of businessman was going against received practice. That's an important note. Another way of saying that I trust my own judgment, the fact that he's, he felt very comfortable going against received practice. His immediate priority was to find a target which was worthy of his ambitions. He did not hesitate to examine several companies a week in minute detail. There goes back to his s- his obsession with detail, his obsession with studying.

8. 38:21 – 51:50

   Racamier and Chevalier: The Doomed Co-Founders

   1. DSDavid Senra38:21

      So much so that he's k- he has a soundproof office, which is hilarious because I record these, uh, podcasts in a soundproof booth. Looks like a phone booth that's soundproof. [chuckles] I should get a giant soundproof office now that, uh, and library, now that Bernard has it. So it says he hesitate to examine several companies, uh, a week in minute detail. The stock market crisis of October 1987 attracted his attention to a share which was plummeting in value. LVMH was now quoted at only twelve hundred francs. It was down 50%. So he goes to his mentor, the guy at Lazard, and he's like, "Let's ron- launch a raid." And Antoine gives him excellent advice. It says Antoine calmed him down. "Wait until they come looking for you." Okay, so at this point, we need to, to introduce two characters that are really important to this story. They're going to be the two co-founders of LVMH. I had no idea that they, they were o- their partnership only lasted a few months before Bernard comes in. So you have Henry Racamier. Uh, he's, uh, one of the co-founders of LVMH, uh, 'cause he's going to merge Louis Vuitton with Moet Hennessy. He, he, he is the one that turned Louis Vuitton into an international brand, which was really fascinating because this book talks about the early history. Like, Louis Vuitton is, you know, this monster, this business today. 1977, they have two stores. And so there's some ideas that he used to build Louis Vuitton that I think you and I should, should be aware of in case we can use it. The second co-founder, n- and these two are gonna hate each other, by the way, are, is Alain Chevalier. He is the one that ran Moet Hennessy. Uh, he merged Moet, uh, with Hennessy. He owned, he also owned the license for the Christian Dior perfume. So at this point, Bernard, because he got Boussac, owns Christian Dior, but he doesn't own the Christian Dior perfumes. They're two separate businesses. Perfumes are probably, if I'm not mistaken, the more valuable, like the more... Not the more valuable, the more profitable of the two lines. So these two guys come together, which I'll read to, to you in a minute, because they're worried about a takeover, and they're both essentially, "Okay, w- if we combine ourselves, we're less likely to be taken over." And then they wind up having a, there's like a, they just, they just clash. They have hilarious quotes in the book about, like, marrying a fish or something. I'll read to you in a minute. Their discontent opens the door to bring in Bernard, and then not realizing that they just left a, let a wolf in the henhouse. And so eventually, Bernard is not gonna like either of these two men. That is not the case at the beginning. In fact, it says, uh, "Chevalier fascinated him. Bernard admired his high profile, his cachet with the establishment, and his international standing. He was dazzled by the elegance of the chairman of Moet." So that's an important thing, where it says, oh, his profile, his cachet with the establishment. Bernard is very much an outsider. He is, you know, in the north of France. He is in, like, the, the industrial region. He is not in this luxury world at all. In fact, this part of the story reminds me of... So I, I've watched and read all the Game of Throne books and just finished rewatching the series again, and I always take notes. I love these maxims, uh, these, like, prompts for thinking. And I came across this fantastic line a few months ago, and I think it, it describes exactly what's happening in this bus- th- this book right now. He says, "Those on the margins often come to control the center." Those on the margins often come to control the center. And the line I saved underneath that one is also a description of Bernard. The world is built by killers. Both of these men have since passed away, but if they were alive and we could ask them, I bet you they would say that Bernard Arnault was a killer. And to use the line from Doug Leone on the, uh, his episode that he just did with on Invest Like the Best, "A killer to get the job done." That was Doug describing him and his partner, Mike, who scaled Sequoia from a $150 million company to, I think, $85 billion of assets under management. We were killers, killers to get the job done. But what was fascinating, one of the most fascinating parts of this business, 'cause I always think is like, what is a real valuable industry right now that no one takes seriously? 'Cause that happens over and over again. I was just rereading my highlights from, um, the early, one of the... I, I read, like, 13 books on the early automobile, uh, 13 biographies on early automobile, American automobile founders. And what's fascinating is, like, they, when they start doing their experiments, there's a line in the book where they're like, for every one car on the road when they started their experiments, there was 3,600 horses in America. And so it looked like, oh, nice little toy you have there. Oh, isn't that cute that you're running this experiment, not realizing that that industry that they're creating right in front of their eyes is going to be one of the most valuable industries ever created. And the luxury industry, like the, the industry where LVMH is right now one of the biggest companies in the world. Bernard and his family are the, you know, he's the richest person. His family's one of the richest families in the world. 30, 40 years ago, they didn't even think it was a real industry. And I wrote after... I'll tell you what I wrote after this. It says, "In the 1980s, the talk of luxury items was not welcome. The term luxury still had connotations of the craftsman. It had nothing to do with real industry." Arnault changes that. So let's go back to this idea of the importance of relationships. So in 1987, Moet entered a period of great anxiety. Three billion American dollars were looking for a French ally to attack Moet. Unknown hands were amassing large numbers of shares on the stock market. The founder families of Moet Hennessy now only controlled 22% of the capital. The Moet management was unable to identify the raider. It soon became clear that the acquisitions were being carried out via this other company whose chairman was the French friend that I couldn't pronounce earlier. That was that green mail guy I mentioned earlier, who was a friend of Bernard Arnault. So Moet goes for protection. Who do they go for protection? They go to Lazard's. The second in command of the Bank of Lazard's, right, is Antoine, which is also Bernard's mentor. So because Moet was trying to avoid getting raided, this is where they push into this merger, right, which is going to c- do, create the company that now Bernard controls and built all of his family's wealth, LVMH. And so then it gives us some background on how Henry Rac... I'm reading my own notes. How Henry Racamier ran, uh, Louis Vuitton, expand, control distribution, do the opposite of low-quality competitors. So it says he had a double strategy. Uh, he, he wanted to make, uh, Vuitton a high prestige brand name symbolizing luxury, distant voyages, and great adventures by means of so- of a sophisticated advertising policy. But also, he wanted to sell throughout, his products throughout the world and control and own his own distribution. And this is what I meant earlier. This shocked me. In 1978, there was only two Vuitton company-owned shops, one in Paris, uh, and one in Nice. And so what he noticed, what people were doing is that they would own distribution, other companies would own distribution in, in high-end areas, and yet they would outsource, uh, the creation of the product to, like, lower cost areas of the world, what the book calls the Far East. And so Racamier had this good idea. He's like, "What if we reverse that?" To supply the shops, he decided to do the opposite of their competitors, manufacturing in France to guarantee exceptional quality and then selling in the Far East. And this strategy works well. There's like a period of about what, what is that, like eight years? Eight years goes by. They own a bunch of shops, and they're making 200 million a year in profit. And so the chapter that's describing, like, H- Henry Racamier's, uh, career, it ends with this fantastic line that is like a precursor to where the story's about to turn and where, wh- to, much to Bernard's, uh, own benefit. Racamier's ambitions knew no bounds. Alliance with the greatest of the great did not hold any fears for him. This was to be a great mistake. Why? Because he's going to merge with Moet Hennes- Hennessy, and then he's going to bring in the wolf in cashmere, which causes him to be kicked out of the company in about a year and a half from here. And so you have two founders merging together, not realizing that they both wanna run the show. This is going to end disastrously. The two co-founders of LVMH lose the war for control to Bernard Arnault. And so first of all, they, they didn't understand, like, they're incapable of working with each other. They're too much alike, as a matter of fact. Uh, so this is the background before Bernard gets introduced. The two groups, so this is now Louis Vuitton and then Moet Hennessy, which is about to merge. The two groups had everything in common, the same aims, the same background of family control, a tradition going back more than a century, and of course, their culture. The merger of the two companies could res- could only result in the birth of one of the greatest French institutions. Well, on that part you're right. It is gonna create a great French institution. It's not j- it's just not gonna be run by you. And wait till we get into the pettiness between these two co-founders, which again, the fact that they couldn't get it wrong, the fact that they picked the wrong partner was their death knell. I had a hilarious thought when I got to this part of the book that I wrote down on myself. I don't have any tattoos, but if I did, uh, this is what I said. Uh, I should get two tattoos, one on each forearm. One, on one, one forearm says, "Watch your costs," and on the other forearm it says, "Control." And so my favorite book out of, you know, the almost 300 books that I've read for the podcast so far, the one I keep talking about over and over again, and in fact, it's going to be episode 300. I just decided. It was gonna be, uh, last time I reread it, it was episode 200. So I had the idea. I was like, oh, every 100 episodes, I should just read Dyson's autobiography, the first one that he wrote, not the second one. He wrote a- another great one that's episode 205 when he was like 70. But the one he wrote when he was like 45 after just going through 14 years of hell is just absolutely fantastic. And so this idea of like, uh, having a tattoo that just says control, right? And like somewhere on, that I see every day is a line from Dyson's autobiography, uh, where he says, "Difference for the sake of it in everything, because it must be better. From the moment the idea strikes to the running of the business, difference and retention of total control." Difference and retention of total control is the entire message that Dyson is trying to get into future generations of entrepreneurs' brains by reading that book. And that was all I was thinking about while I was reading this ridiculous, like, merger and then fight, and then they try to reverse merger that, that which Bernard's not gonna a- allow at that point 'cause he had too much control. It was just absolutely like, "Why are you doing this?" The biggest mistake is to relinquish your control. If you maintain the control, you'll get the money anyways. And so let's go into why. I was thinking about that friction between the two most powerful men in LVMH surfaced immediately. Each one wanted to be preeminent. And it's funny 'cause, uh, Chevalier has this quote that happened before I think their agreement. Um, he says, "Groupings which do not follow any kind of industrial logic end up badly," he said. "It's like a marriage between a carp and a rabbit," so a fish and a rabbit. "Naturally enough, such unions usually end in divorce." He did not know how right he was. So the merger happens, and this is what happens next. They stepped up both their surface affability and their concealed deceit. And so what does that mean? They immediately start fighting over is, okay, where's the new headquarters of LVMH? This is, I wrote down here, never underestimate human pettiness. They pick a location, but Racamier says, nope. He's not even gonna bother to visit it. Why? Because the address did not suit him. It was too close to, too close to Moet. So the search began again. The ideal solution were for premises that were equal distance away from their two headquarters. Think about that. The new proposed headquarters is too close to the former Moet one, and not close enough to Louis Vuitton. I will not go there. You have to find one that is equal distance between the two existing headquarters. That is ridiculous. Once they've solved that problem though, now they have an office. They start fi- fighting over the interior design of the office. Co-founders that fight over everything, especially the unimportant, is the note I left on my, on the page here. The problem of office was settled, and then the two men turned their attention to decoration. Each one wanted his own decorator. The co-chairman took a malicious ple- pr- pleasure in provoking each other. So we're gonna fight over the location of the office. Now we're fighting over the de- decoration of the office. Now we're gonna go, we're gonna, we're gonna step up our level of pettiness. We're gonna fight over the new company letterhead. But let's not stop there. When we do promotions for our new company that we both wanna succeed, let's take something that should take two minutes, and let's take, let's make it take hours. The photo sessions for the Fortune magazine, which devoted its first edition to the alliance of the two great companies, was also turbulent. It took three hours to obtain a few photos of the two co-founders side by side. The architects of LVMH could not agree on the brand of champagne that would appear in the photo. And this wraps up this section. This is why the inabil- inability of the LVMH co-founders to work well together is so important to understand. Personal differences made the whole structure more fragile. Personal differences made the whole structure more fragile. This dissension at the top of LVMH opened up a breach for a potential intruder. Bernard "Terminator" Arnault is coming, guys. The dissension at the top of LVMH opened up a breach for a potential intruder. This was to be Bernard Arnault's opportunity. He was already waiting in the wings. And so when he sees that stock drop during the, the crash of 1987, remember, remember it goes back to what Charlie Munger said and Warren Buffett says, "We're not rich because of intelligence, we're rich because of temperament. We go in, we rush in when everybody else is running out." In fact, Buffett has one of the greatest lines about this ever. It is in his shareholder letters, and he says, "We are equipped both financially and emotionally to play offense while others scramble for survival." Buffett has a very positive, affable public persona. That is cold-blooded. We play offense while others scramble for survival. Bernard is doing the exact same thing at this point in his life. So let's go into that.

9. 51:50 – 57:33

   Arnault Plays Both Sides and Seizes LVMH

   1. DSDavid Senra51:50

      Secretly, Bernard acquired his first shares. He was moving forward slowly until such time as his finances were in a healthier position. He began by turning to private finance. In less than a month, he had managed to raise the equivalent of one point five billion francs in the form of various credits. I had to go look into the footnotes to be like, "Okay, well, who's giving him the money?" One institution is Credit Lyonnais, the other is JP Morgan, and then they also manage JP Morgan and a group of eight international banks. And then he does something that he wouldn't do later in his career. He laid his cards on the table in an interview. He declared, "In the current economic climate, the stock exchange is at its lowest. There will be opportunities to seize, both in luxury goods and distribution. The key is to make the right choice and skillfully to apply rational methods." He could say all this more easily as he had battle funds of around six billion francs. When there was a talk of a possible takeover bid for the group, this is LVMH, right? Uh, there was talks of a possible takeover bid for the, for the group, LVMH. But nobody then imagined that Bernard Arnault could have been a, been a possible predator, especially Henri Racamier, who went and sought him out in hopes of ousting his partner, Alain Chevalier. Arnault had come to Racamier's notice. It appeared Arnault had the same approach to the world of luxury g- luxury goods. Bernard's young age, check this out, Bernard's young age was a decisive factor in Racamier's decision. He could not become a rival, he thought. Why did he think he couldn't become a rival? Because I'm a 76-year-old unbelievably successful person. This is 35. He, Bernard's 35. Yeah, he's sharp. Maybe we can get him to succeed in, like, five, and he can run the company in, like, five, 10 years. And this is where Bernard's like, "Nope, I'm coming for everything." And then let's go back to this main theme. Bad boys move in silence. These meetings that are happening between Racamier and Arnault are taking place in great secrecy. Guess what? Arnault's also gonna have secret meetings with Racamier's partner that he hates, that he's trying to get out, too. So the book goes into great detail about this. I'm just gonna give you the punchlines here because it's so, it's, like, almost too much detail. Especially what Bernard's here, Bernard's doing very skillfully. He's playing everyone else off of each other. He knows that they hate each other. They, both of them now, he's had meetings with both of them. They both think they're his ally. And so he says, "Racamier was still counting on Bernard to overcome Chevalier. Chevalier was convinced that he had found, that in Bernard he had found himself the support necessary to neutralize Racamier." See, this is like, this goes back to, like, why I said it was so important to understand the discontent between the two co-founders of LVMH, and how it opened the door for Bernard. This was a skillful setup. Everyone believed that they owed him something. Nobody yet suspected the true designs of this young man. And so these events that I'm describing, this is July 1988. Remember, he doesn't get control until the next year. He does not have full control yet. As of July 29th, 1988, he owns about 27%. He needs more money to continue his advance. So what does he do when he needs more money? He goes back to that setup, that Russian doll cascade setup that Antoine taught him. To follow up on his, his attack, he needed money. He therefore reorganized part of his empire according to a well-tried technique in order to raise capital. A partial sale Of the Dior company. Until then, Dior Couture was held 100% through Bozac. Immediately, he transformed Dior Couture into a holding company, allocated its stake in LVMH, and offered the capital to the holding company, and o- and offered the capital of the holding company to private investors. Why did he do that? Because this brought Bernard 3.3 billion francs, money he's going to use to buy more shares of LVMH. And so eventually, Racamier realizes, "Oh, no," he switched sides, and he realized, "Oh, th- like this part... I thought I had a partner, and now he, actually, he's my predator." And so this is when it gets unbelievably complex. I could read this section 10 times, and I probably still wouldn't understand it completely. The main idea that jumped out, and the one that I wanna remember, is the fact that Bernard... Remember, he, he s- he, he gets in when there's this huge crash. That's his first, uh, when he starts first accumulating shares. Now, there's so much buying that's happening in secret. He's raising so much money to buy stock that the, the stock price is soaring. And this is the main part that, that jumped out to me. Bernard believed in his plan so much that he kept buying even at record prices. And what's crazy is his, his adversaries see the jump up in price, and they sell. And they sell because it's a record price. And so what I thought is like, okay, well, what are those shares worth today? What at the time... This is like, how crazy is this? At the time, it looked expensive. What looked expensive was actually unbelievably cheap, and no one saw it but Arnault. So it says, "At 1:00 PM, uh, Arnault attacked. The shares soared to 4,720 francs." Remember, he, he bought in, started buying in at what? Like 1250 it said. This was a record level. "Faced with this explosion in the price, Racamier, a good financier, lightened his portfolio of LVMH shares. 80,000 shares were sold." Who do you think bought it? Arnault continued buying. In two sessions on January 5th and 6th, he managed to buy up 800,000 shares, 8% of the, of the existing LVMH shares. By Friday, January 6th at 6:00 PM, it was clear. An LVMH board meeting was called. In the corridor, Chevalier met Bernard Arnault. "A good sport," he told him. "I played, I lost, I'm resigning." There's the line I, I mentioned earlier, "Only killers survive." Bernard Arnault had won. Six months had been enough for him to reach the helm of the most expensive company in France. The following day, he would be sworn in as the chairman of LVMH. That is the last line in a chapter called Conquest. The next chapter is called The Terror. Remember, he is 40. He is 40 years old. And now it picks up where we started the book at. "I am the boss. I shall be here on Monday morning, and I shall be running the company in person. There will be no power vacuum."

10. 57:33 – 1:03:28

    The Terror: Racamier's Fight and Arnault's Luxury Thesis

    1. DSDavid Senra57:33

       Now he had to deal with the aftermath and let it known, this is about the dictator, right? N- now he had to deal with the aftermath and let it be known that the group was managed by a single person. And what's remarkable about reading these old books, older books, right? And you see a snapshot in time. He calls his shot. He is 40 when he says this. And over the next 30-something years, he, this is exactly what he does. Arnault said he wanted to make LVMH the biggest luxury goods group in the world. He said that at 40. And so even though Bernard is unanimous chairman, right, he's gotta fight for, like, another year and a half, something like that, because Racamier's refusing to give up. He, he believed in perseverance. He says, "If he had to fight, he would fight to the end. He would not let this youngster..." How many... So they've used that word to describe him, like, three times in the book so far, I guess. "He would not let this youngster, whom he had imprudently introduced into the group, take from him his company, his wife's company, and that of his in-laws, a company it had taken 10 years to rebuild. The aggressiveness of this young man surprised him. He had been wrong about Bernard." This is very fascinating. He'd, when they closed the first deal they did, he had a premonition that maybe he was wrong, and this is, he wound up being proven right, you know, six or nine months later. He had been wrong about Bernard. He said that he had a premonition. "When I signed the alliance pacs- pact with him in June 1988, I held on my hand. It was like holding a limp rag. I felt a gut reaction telling me that I had been wrong, but the die was cast. Afterwards, I rationalized it." When I got to that section, it made me think of one of my favorite quotes from Steve Jobs. He said, "Intuition..." Steve just said this towards the end of his career. "Intuition is a very powerful thing, more powerful than intellect, in my opinion. That's had a big impact on my work." And now, if you do not mind, I would like to make one more comparison to Rockefeller. Rockefeller did not, was not f- uh, particularly enthusiastic about the oil, the burgeoning oil industry, right? He just saw that as his best opportunity to make a lot of money. He wanted to make a ton of money because he thought, like, God gave, you know, he's giving him this power. He's, his job is to make as much money as possible and then give it away. And he also saw an industry that was growing, and he could kind of, like, impose his will on. I think that's how Bernard saw the luxury industry, although it's a lot more glamorous than, like, refining oil like, uh, was, you know, in the 1800s. But listen to w- how he talks. "Friends were amazed by this person who presided over the destiny of so many luxury brands, the only area in which French products could not be competed with, for Bernard had understood before anyone else that it was a true industry." That sounds exactly like Rockefeller. "For Bernard had understood before anyone else that it was a true industry. To his friends who said he was in love with the luxury good industry, Bernard replied, 'Not at all. You cannot explain love. My relationship to luxury goods is really very rational. It is the only area in which it is possible to make luxury profit margins.'" He's still having this fight with Racamier. I just wanna point out, this is exactly what Rockefeller was called as well. Racamier starts insulting, uh, Bernard in the ple- in the press. So at one of their meetings, he approaches Racamier in the hallway, and he says, "You made a libelous attack on me by calling me a bandit and a gangster." That's how Rockefeller was described in his day. Th- Ro- Racamier's, uh, response here was actually kind of funny. "I made no attack. I just made an objective statement." And so even though he made a bunch of, um, errors, like first merging with Uh, Moet Hennessy and then inviting, uh, Bernard in. He, you gotta like this old guy. Like, here's, uh, here's an example. Like, he just refuses to give up, like, until he's forced to give up. So they're both realizing that both is more powerful than the other one thought. This old gentleman never gave in. Worse still, he gave the impression of backing down so as to counterattack better. He liked to fight. And in return, Racamier perfectly identified now he, you know, he, he over-- underestimated his opponent, didn't really understand who he was. Now dealing with him, he goes, "Oh, uh, Bernard wants to take power everywhere and immediately." That's a great quote. "Bernard wants to take power everywhere and immediately." And so then I need to pull out something that was fascinating. So in the Business Breakdown episodes, it talks about, like, they're talking about Bernard now, right? And through, like, his track record. He's got thirty years of track record that, that is not in this book. And he says that one thing that Bernard did back then and still does to this day, which is very valuable, that he targets timeless brands that have proven themselves in different economic cycles and through changes in consumer preferences, even though LVMH may be thirty, forty years old, whatever it is, some of their brands are hundreds of years old. So it's this idea of like, let's target-- And you see that he did this. I'm, I'm gonna, I'm taking the, the quote from bus- the Business Breakdown episode and tying it into where we are in the book. The young Bernard knew that he was gonna do this. So he's gonna target timeless brands that have proven themselves in different economic cycles and through changes in consumer preferences. Why? Because they are durable. And how do we know that? Because time is the best filter. Let's go to a young forty-year-old Bernard saying, "No, no, no, I know what I own is rare, and it will increase in value over time. My ten-year objective is that LVMH's leading position in the world will be further strengthened in the luxury goods sector. I believe that there will be fewer and fewer brand names capable of retaining a worldwide presence, and that those of our group will be among them. My plan for the next six months," so that's his ten-year objective, "My plan for the next six months is to see all the group managers of other businesses and increase their motivation." That's a nice way of saying he's gonna be on their ass, right? "My plan for the next six months is to see all the group managers and increase their motivation by sharing my highly ambitious objectives with them." Back to another idea that we've seen over and over again. Bernard Arnault is intolerant of slowness. His relative youth emphasized his impatience. His goal was to still make his mark in the business world fast. Reaching the age of forty encouraged him in this direction.

11. 1:03:28 – 1:07:50

    Complete Control and the Napoleonic Portrait of Arnault

    1. DSDavid Senra1:03:28

       And so eventually Bernard wins. He gets Racamier out of there, and then this is a great description of a young Bernard by a journalist. He makes the cover of a French magazine. No one has any illusions left about this ambitious young financier who has shown no compunction in removing the man who had introduced him into the LVMH fold. Those who were naive enough to see Bernard rise as a succession of lucky accidents had understood nothing of the man or his technique. The text was illustrated by a cartoon, a man with a wolf's head. And another, another comparison with Rockefeller talks about finally he has complete control. Says he devoted himself to running the world's leading luxury good company. His investments had been costly, eleven billion francs. He had to get out of debt and most importantly build up his war chest again. If you study the early history or the early career of Rockefeller, he had no compunction about going deep into debt and using the money raised to monopolize his industry and have complete control over not only Standard Oil, but the entire oil refining market. And so the book ends with Bernard in complete control and the author is wondering, what is next? But will he be content with having achieved what he set out to achieve? He is, after all, only forty-two. "By the time I'm seventy, I'll have retired long since," he says. Was he to be believed? We know from our vantage point, hell no, right? He had worked from the time he was a child, and he had never stopped working. His father had never had to tell him to study. That was all that he had ever done. At all events, he had determination, and he never gave up. The willpower forged by the strict upbringing he had received meant that he lived a lonely life, setting him apart from other members of his generation. He was not like other people. Even at the age of nineteen, he was different, just like Rockefeller. In May 1968, when all of his fellow students had taken to the streets and were on protest march, marches, his single concern was that his lectures would be canceled. He thought only about one thing, passing his exams. This solitude was to be his constant companion. He was never wholly to trust anyone apart from his father. He kept his joys and his sorrows to himself. Rockefeller. He was impassive whatever the circumstances. What did he think of other people? It was exceedingly difficult to tell. He showed nothing of his feelings. He did not care much for fancy social events, which he felt were a waste of time. The parties that he threw to celebrate Dior's fortieth anniversary, for example, were extremely lavish affairs. This was not ostentation. It was work. You had to make people like you, but how? His strength lay elsewhere. His success was founded on what could almost be called a Napoleonic strategy. Select the right target, attack the enemy at the right time and in his weakest spot, and leave nothing to chance in the ensuing battle. Racamier is an iron fist in a velvet glove. Arnault is an iron fist in an iron glove. If Arnault has a religion, it is efficiency, so much so that people no longer dare invite him to lunch for fear of meeting with the have we anything left to say to each other line that he has passed into legend. Each moment counts. He does not compromise. He overturns everything in his path. It is totally foreign to his nature to compromise his beliefs. He relies on no one but himself and does not want to be in anyone's debt. Above all, he has to be in control of events. It is not surprising that the only man who truly fascinates him is Giovanni Agnelli. The chairman of Fiat embodies both the supremely successful industrialist and unequaled power. That, in Arnault's eyes, is what it is all about. Politics is ephemeral. Companies have a durability which guarantee the only real power worth having. And Bernard Arnault has a taste for power and luxury. They knew all this about Bernard Arnault when he was forty-two. Is it a surprise that thirty years later, he built one of the most successful businesses in the world? That is two hundred and ninety-six books down, one thousand to go, and I'll talk to you again soon.

Episode duration: 1:07:51