# #296 Bernard Arnault (The Richest Man in the World)

- **Show:** Founders
- **Published:** 27 Mar 2023
- **Source:** https://www.founderspodcast.com/
- **Transcript:** https://podcasts.opennash.com/shows/founders/296-bernard-arnault-the-richest-man-in-the-world-5f4343/
- **Provider:** OpenNash Podcasts (machine-generated)

## In brief

Drawing on the book The Taste of Luxury, the host argues that Bernard Arnault built LVMH through relentless work, patience and control. He bought distressed or undervalued assets, cultivated powerful allies, and used financial structures that let him control large companies with little of his own money. He never shared control.

The main tension is between how Arnault looked and what he was. To rivals he seemed a polite, young outsider, so they underestimated him. Henri Racamier invited him in to defeat a partner and was himself pushed out. The founders' pettiness opened the door, and Arnault's secrecy and speed walked through it. By age 40 he held the chair.

## Key insights

1. **Cash and patience beat desperate sellers** The Willot brothers owned Boussac, which lost about 100 million francs a month. Arnault waited until liquidation loomed and then bought it. The host ties this to Charlie Munger's point that cash lets you move fast on bargains.
2. **Rivals' pettiness handed Arnault LVMH** Racamier and Chevalier fought over headquarters, decor and champagne in photos. Arnault met both in secret, and each thought he was an ally. The weakness at the top was the opening he needed.
3. **Layered holding companies let him control more with less** His mentor Antoine Bernheim taught him to hold 51% of a financial company that holds 51% of the target. He then sold minority stakes in subsidiaries to the public. That raised cash without losing control.
4. **Underestimation was his most useful weapon** Racamier chose Arnault partly because, at 35, he seemed too young to be a rival. Rivals also sold shares to him when the price hit records. The host's advice is to assume the other side is a secret genius.
5. **He bought brands, then took over distribution** At Dior he found 260 licenses scattered worldwide and weak quality. He built exclusive shops instead. Louis Vuitton had only two company-owned stores in 1978, but Racamier's choice to own distribution made it an international brand.

## Questions this episode answers

### How did Bernard Arnault get control of LVMH?

He started quietly buying shares after the October 1987 crash, using bank loans and money raised by selling part of Dior. By January 1989 the other leaders had conceded, and Chevalier resigned.

### Why did he want Boussac in the first place?

Boussac was a failing textile empire, but it owned Christian Dior. The host says Arnault targeted Boussac because he wanted Dior, and he thought a powerful brand could fix the other problems.

### What is the 'Russian doll' ownership structure?

It means owning 51% of a holding company that owns 51% of the target, so you control the target with much less money. Arnault also sold minority stakes in subsidiaries to raise cash while keeping control.

### Why did LVMH's two founders end up losing it?

Henri Racamier of Louis Vuitton and Alain Chevalier of Moët Hennessy were too alike and each wanted to run the group. They fought over small things, and that weakness let Arnault play them against each other.

### Why does the host compare Arnault to Rockefeller and Buffett?

The host sees Rockefeller in Arnault's perfect manners, distance from others and drive for control. He sees Buffett in his skill at finance and his willingness to buy when others are fleeing.

## Facts

- **David Senra** [0:00:33]: "Friday the thirteenth January 1989 was the day that he took office."
- **David Senra** [0:04:01]: "He's born in France in 1949, and he's the son of a building contractor."
- **David Senra** [0:13:03]: "Bernard goes and sells his company for 40 million francs."
- **David Senra** [0:13:56]: "his company had become the leading French property develop developer for private houses"
- **David Senra** [0:15:33]: "his neighbor was none other than John Cluj the multimillionaire who had made a who had just made a takeover bid for the communications conglomerate Metro Media"
- **David Senra** [0:17:15]: "the largest industrial bankruptcy bankruptcy in France in French history at the time"
- **David Senra** [0:17:15]: "the public authorities in France are anxious to rid themselves of a business that was losing them 100 million francs a month"
- **David Senra** [0:23:46]: "The Willots had their back against the wall, and on November fourteenth, they signed the agreement."
- **David Senra** [0:26:59]: "It was impossible to manage the patchwork of 260 licenses worldwide."
- **David Senra** [0:28:50]: "he invested 70 million francs down initially and then they agreed to invest another 200 to 250 million francs over the next five years."
- **David Senra** [0:30:58]: "there is the deregulation of the market in 1984 uh in the Paris that the Paris Stock Exchange experienced a new awakening"
- **David Senra** [0:31:54]: "This consisted of buying a package of shares in a company vulnerable to takeover, with which he renegotiated the buying back of the securities at a genuinely higher price."
- **David Senra** [0:35:49]: "it is battled better to have 51% in a purely financial company B, which itself then holds 51% of Company A."
- **David Senra** [0:38:43]: "LVMH was now quoted at only 1,200 francs. It was down 50%."
- **David Senra** [0:43:05]: "the founder families of moet hennessy now only controlled 22% of the capital."
- **David Senra** [0:44:25]: "in 1978 there was only two Vuitton company owned shops one in Paris uh and one in Nice"
- **David Senra** [0:45:06]: "manufacturing in France to guarantee exceptional quality and then selling in the far east"
- **David Senra** [0:51:43]: "In less than a month, he had managed to raise the equivalent of 1.5 billion francs in the form of various credits."
- **David Senra** [0:54:51]: "this brought Bernard 3.3 billion francs money he's going to use to buy more shares of LVMH"
- **David Senra** [0:56:14]: "Arnaud attacked, the shares soared to 4,720 francs. Remember, he bought in,"
- **David Senra** [0:56:41]: "he managed to buy up 800,000 shares, 8% of the of the existing LVMH shares."
- **David Senra** [0:56:41]: "A good sport, he told him. I played, I lost, I'm resigning."
- **David Senra** [0:57:55]: "Arnault said he wanted to make LVMH the biggest luxury goods group in the world."
- **David Senra** [1:03:47]: "His investments had been costly 11 billion francs."

## Transcript

**[0:00:00] David Senra:** 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.

**[0:00:33] David Senra:** 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 thirteenth January 1989 was the day that he took office. The fifteen people invited to witness the event at LVMH's head office were beginning to filter into the large conference room.

**[0:01:03] David Senra:** 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 Rochemont, 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.

**[0:01:32] David Senra:** Rochemont made an entrance. This was merely the first step. Rochemont 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 Rochemont had no intention of letting himself be pushed around. This seventy six-year-old was thirsting for revenge. From now on, he would wake each morning vowing to topple Arnault.

**[0:02:04] David Senra:** If he had one quality, it was perseverance. At eleven thirty a m, 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.

**[0:02:35] David Senra:** 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 going to talk to you about today, which is The Taste of Luxury, Bernard Arnault and the Moet Hennessy Louis Vuitton story, and is written by two French authors.

**[0:03:07] David Senra:** 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. 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.

**[0:03:34] David Senra:** 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 where 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.

**[0:04:01] David Senra:** In addition to that, I also listened to the excellent uh episode of business breakdowns. It's titled LVMH, the Wolf and 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. 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.

**[0:04:25] David Senra:** He's the third gener, he's going to end up being the third generation in this family business. His father, Gene, 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 series, many episodes I'm going to do on Napoleon, because Napoleon just pops up again and again in these.

**[0:04:52] David Senra:** If you're reading biographies on history's greatest entrepreneurs, pre World War Two, they're going to 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, starts out, okay, we got this young, studious, driven.

**[0:05:16] David Senra:** I guess I should tell you this up front that I didn't understand until I read this book and then listened to both the acquired and the business breakdowns episodes. The what pops out of 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've listened 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.

**[0:05:42] David Senra:** But this just idea where, like, it's like all work and no fun. So we just have this young version of, I think he's like ten 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 P. E. The boy would listen attentively, a habit that he was never to lose.

**[0:06:05] David Senra:** 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 Savanel, 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.

**[0:06:26] David Senra:** I sat and listened to correct 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.

**[0:06:50] David Senra:** 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 thirty five-year-old Bernard buys. Boussac, and the reason he buys is because it's this, this uh conglomerate that is now taken over by the French uh government.

**[0:07:24] David Senra:** 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 going to eventually lead him to overtaking and taking over LVMH. Let's go back to his childhood. I just got to pull some quotes. I went looking because he's got a fantastic quote spread over the internet, and he says, I'm very competitive. I always want to win.

**[0:07:48] David Senra:** The way I would describe his childhood is work, work, work, and more work. He was reared on his grandmother's stories, the studious young 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.

**[0:08:11] David Senra:** Bernard worked. This is one of his great quotes. Or it gives you an indication, like, the reason um I wanted to go around collecting his quotes in this book and otherwise is because it really gives you an insight into his personality, 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.

**[0:08:30] David Senra:** I had to work, so I worked. He's both unbelievably gifted and unbelievably hard working. You couldn't compete with him, said one of 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.

**[0:08:54] David Senra:** He has this rare combination of of he's intolerant of slowness, and he has an unbelievably long-term view. Um, that I think is very has been beneficial. Remember, this book ends. Wait till you get to the end of the book, what he says. He is forty two, 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 training course that was uh with McKinsey, uh, the management consultants, and he did not like it.

**[0:09:21] David Senra:** 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 twenty two 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.

**[0:09:43] David Senra:** I forgot what it was like Forbes magazine or Fortune magazine. I think they're like twelve or thirteen, 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 to do anything else but manage a company. I knew this is what I was going to do, what I wrote down in the margin as well. There's no way that this guy was going to retire at seventy years old.

**[0:10:01] David Senra:** 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, in college. Now he's out of college and he's working he'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 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

**[0:10:29] David Senra:** extreme discretion 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 going to do this in his career He's working uh with Pierre uh I don't know his name Pierre Gode I'm just going to call him Pierre He's working with Pierre They say

**[0:11:04] David Senra:** 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 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, fifty post-it notes throughout this entire book.

**[0:11:31] David Senra:** I wrote down relationships, relationships, relationships over and over again. We see this, that this is something that Bernard's going to do for the next two decades to when this book ends. Price still does it to this day. He's just constantly building relationships of relationships to people that are very similar to him in the sense of like, driven, talented, and can help him achieve his goals. Go back to then the book goes into great detail about what I would consider like his personality and management style.

**[0:11:56] David Senra:** 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 going to 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 field, he's learning everything about it, and then he steps back and becomes this like master strategicist.

**[0:12:18] David Senra:** 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 I think it was both on the uh uh the acquired episode and the business breakdown episode where they talk about that. Bernard's very much like an engineer by training.

**[0:12:40] David Senra:** He had this like unique combination of an engineering mindset and an artistic mindset. And there's 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 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.

**[0:13:03] David Senra:** And so he's actually going to sell his dad's company. And he says, Gene Arnault's feelings for this disruptive son of his, whom he often had to reign in, were a mixture of affection and anxiety. 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 his company for 40 million francs. For the small provincial business, this was a great deal of money.

**[0:13:24] David Senra:** 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. I'm not going to go into that because there's so many. This 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 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.

**[0:13:56] David Senra:** So it says within five years, his company had become the leading French property develop developer 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.

**[0:14:23] David Senra:** 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 employees' desk at midday. At two p. m. two hours later, he called and asked him how much he had sold. To 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.

**[0:14:49] David Senra:** And we see that even he's in his like mid-twenties, I think at this point. And it says, uh, beneath this is this, he says this, the success that he was having. So he might be, let's say, late twenties, maybe early thirties 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.

**[0:15:10] David Senra:** He's going to go to the to the business mecca in the world, right? He's going to go to the United States. It is hilarious. Later on, right? He's running, I think the biggest export of the French economy to this day, um, is luxury goods. And he is viewed 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 investment opportunities elsewhere.

**[0:15:33] David Senra:** 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 Cluj the multimillionaire who had made a who had just made a takeover bid for the communications conglomerate Metro Media This book says multimillionaire when I listened to the acquired episode I think John was one of the richest if not the richest people in the world shortly after this Um, he

**[0:16:06] David Senra:** wound up making he was doing like these leveraged buyouts, and I think these like takeovers, and I think they said, and this book, it says multimillionaire, but in the episode, the acquired episode, they said he made uh $5 billion, I think, on that deal. But this is important because Arnault's going to use some of these techniques. This is why I'm giving you this background. Cluj 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.

**[0:16:29] David Senra:** That's why he's looking up to him. He won 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. 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.

**[0:16:50] David Senra:** 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 the perfect timing, uh, because this is the nineteen eighties. In the crazy eighties, there's all a bunch of buyouts, takeovers, L B Os, raids.

**[0:17:15] David Senra:** This is all pre uh LVMH. So Boussac at the time which is 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 France 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 It says it all began in 1978 with the collapse of the Boussac Empire, the man who had invented pajamas.

**[0:17:53] David Senra:** 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 it was the horses, his chateau, and his newspapers. All that remained of the depleted empire were assets in the declining textile industry, which just like Buffett, uh, eventually Bernard's going to sell off, and one jewel, Christian Dior.

**[0:18:17] David Senra:** 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 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.

**[0:18:38] David Senra:** 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 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, and getting Dior, he's going to get one.

**[0:18:59] David Senra:** His sights are set like this. I I reference 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 eyes set on this thing, and I'm just going to do whatever I can. I don't care whatever bear you put up in front of me. I'm going to figure this out one way or another. And in this case, his first objective is like, I'm going to get Dior, one way or the other.

**[0:19:20] David Senra:** And he tries to buy it piecemeal. It's like I'd rather just have Dior. I don't want all this other Boussac stuff. But he said, No, okay, that's fine. I'm going to get Dior no matter what. So it says 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 the United States?

**[0:19:40] David Senra:** 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 Willits. 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?

**[0:20:00] David Senra:** These guys own this company, but it's they're just getting drained constantly. They have pressure from the French government, French government to figure this out. And so Bernard's like, okay, I'll just, I'm just going to wait. I'm going to 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.

**[0:20:24] David Senra:** 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 told some stories about this. Like, you could have an asset that's hypothetically worth $2 billion. There's some kind of either the blowup of a uh uh an individual company or like this large recession, and suddenly you picked up something for 450 million that's worth 2 billion.

**[0:20:44] David Senra:** It's if you have cash, time is your friend. You're going to 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. First time I wrote down what I mentioned I have on a bunch of post-it notes.

**[0:21:05] David Senra:** Relationships, relationships, relationships. This is an 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 don't take them seriously. There's other buyers that like, we don't have to worry about this guy. Who is he? Like, we're going to win this.

**[0:21:28] David Senra:** 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 secret genius, that they know way more than you. This idea where you're going to underestimate them, like, oh, I'm smarter, I'm going to beat them.

**[0:21:51] David Senra:** Or the case is like, okay, like maybe they might be hiding something. The point is, even if it's right, it's all downside, no upside. What's the point? Just I would do the reverse, right? They'll never give Boussac to a thirty six year old property developer living in the United States. Trumpet is this other buyer, sure of himself. Everyone underestimated Bernard. That's exactly what's going to happen, man. What is the point of underestimating somebody? Arnault remained inflexible.

**[0:22:14] David Senra:** He wanted control. There was no question of his becoming uh the brothers partners, these other willlets. They're like, oh no, you know, we don't want to 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 going to partner with this guy. Going back to first, they criticize you, then they copy you.

**[0:22:35] David Senra:** I got a great quote about him. I'm going to read after this. Everyone discouraged him. Remember, they said, Hey, you're crazy, get on a plane. Oh, they're not going to sell it to him. Everyone discouraged him. They're telling him, oh, don't get involved. These are all different quotes, right? Spread over multiple pages. Everyone discouraged him. Don't get involved. You will 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.

**[0:23:00] David Senra:** 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 ten years now, every competitor is trying to imitate.

**[0:23:24] David Senra:** 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 sixteenth.

**[0:23:46] David Senra:** The Willots had their back against the wall, and on November fourteenth, they signed the agreement. And so now that Bernard has this agreement signed with the brothers, he goes and does 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.

**[0:24:09] David Senra:** The two men did the rounds 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 of an industrialist he was. Remember, he's really young at this time, how solid his financial backing was.

**[0:24:32] David Senra:** Here, too, Bernard surprised everybody. This is not somebody. I just, it just hit me now reading this 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, Rochemont. He's like, Oh, we're old. Let's bring in, let's bring in. They're trying to off. I'll get to this later.

**[0:24:53] David Senra:** But they're trying to avoid 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 going to succeed you. But he's gonna be like, oh, that's a nice business you have there. Uh, I'm not going to wait five years, ten years. I'm going to actually control it now.

**[0:25:13] David Senra:** 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 France and 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 that they play a huge role.

**[0:25:34] David Senra:** 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 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 Tower of Charlie Munger, which is what I also covered in the last episode, where Charlie can't get into to.

**[0:26:01] David Senra:** He's rejected to Harvard Law School. He has a friend that used to be like the former dean that lives just happened 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.

**[0:26:31] David Senra:** He's going to 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 this is the really lesson I think to you and I is it's 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

**[0:26:59] David Senra:** was to be the starting point for his strategy It was Dior was a famous name but they had innumerable difficulties So just poorly run business is essentially what they're saying They have too many licenses, not enough boutiques. They're 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.

**[0:27:20] David Senra:** 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.

**[0:27:42] David Senra:** 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 Henke 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.

**[0:28:07] David Senra:** 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.

**[0:28:27] David Senra:** 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 meets somebody, he thinks they're valuable. He would hire them just as meeting them and worry about what to do with them later. He just knew that talent was everything.

**[0:28:50] David Senra:** Uh so it says they're going to 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.

**[0:29:11] David Senra:** He's like, this doesn't make any sense what Dior's doing. We're going to 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 Maze or Maze is doing. 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, stuff, we's um, let me find the actual quote.

**[0:29:33] David Senra:** 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 in the long term, even though it goes against his nature. That speaks to his discipline. They talk about, you know, terminator. Let's go back to that idea of Bernard terminator or no, or no, however you say his name.

**[0:29:54] David Senra:** A network of shops is not built overnight. It took a long time to construct. Well, he's still in the business. That's good. That's the investment. Those investments reap and compound over a long time. It doesn't make sense if you're going to get into a business, jump around like most uh most entrepreneurs do. But Bernard is like, oh, I'm doing this forever. Like, I'm going to stay in here and I'm going to build this thing, and we'll see how far I can go.

**[0:30:10] David Senra:** And he did something smart. He did not, I always say, like, worst thing you could do is usually when people have 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 going to wake up with a loss. He did not go to sleep on a win. He's not going to wake up with a loss.

**[0:30:27] David Senra:** Arnault did not stray from his path. Relentlessly, he pursued his ascent and seized every passing opportunity. Another left myself on that page is like Jeff Bezos. Arnault is relentless. Of course, we know Bezos owns Relentless dot com. To this day, he almost named Amazon Relentless dot 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. So in the background, the environment that allows him to wind up getting control, eventually getting control.

**[0:30:58] David Senra:** One of 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 eighties. Anybody that studied this period knows it's just absolutely insane. Buyouts, takeovers, raids. So it's buying into uh LVMH, I think in 1987 and has complete control by 1989, I think.

**[0:31:23] David Senra:** Let's go back to the beginning of the book to make sure I'm right. Yeah, Friday, January thirteenth, January, uh, 1989. Okay. And we're also going to 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 going to happen that's 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 rating The benefit of reading this

**[0:31:54] David Senra:** 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 going to 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 green mail. This consisted of buying a package of shares in a company vulnerable to takeover, with which he renegotiated the buying back of the securities at a genuinely higher price.

**[0:32:15] David Senra:** Uh, sometimes Bernard accompanied his friends in 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 I underline that that line twice. He had such an appetite for victory and such a capacity for work that he was bound to succeed.

**[0:32:42] David Senra:** 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 and 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-thirties, early thirties 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 ten years old, all he wanted to do is study and work.

**[0:33:07] David Senra:** 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 from the Willup brothers. Uh, that that episode was very revealing. And so I do not want to overwhelm you with detail here, but I do think this is important because, again, this goes back to something that he just loves. He's going to control as much of his business as possible.

**[0:33:29] David Senra:** So he was raising money to buy out these brothers. And now he's like, all right, now I got to figure out a way to get rid of these guys. 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 and would remain at the beck and call of the bankers.

**[0:33:51] David Senra:** And as we've seen, as his life plays out during and after this book, Bernard's not going to 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 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're often constrained of being edged into a corner by a whole series of contingencies.

**[0:34:18] David Senra:** I'm lucky in that. I say, I want my group to be in such a such position in ten or twenty years' time, and then I formulate a plan to make that happen. He, this is what I mean. 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 going to call him Antoine. It says Antoine is the true architect of Bernard's meteoric career.

**[0:34:42] David Senra:** 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 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.

**[0:35:07] David Senra:** It's like, just say who 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. Because 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 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 great summary of this page you can generate a ton of cash by

**[0:35:49] David Senra:** 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 and of capital in Company A, it is battled 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.

**[0:36:21] David Senra:** That sounds confusing. They give you a 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 is important to point out for the French market and for the appetite of Bernard Arnault so it says the magic formula did exist it was the stock exchange So the next time instead of counting on the financial support of investors which is what Bernard did to get control

**[0:36:55] David Senra:** 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's 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 market stock market without losing overall control.

**[0:37:27] David Senra:** 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 looked 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.

**[0:37:55] David Senra:** Uh, he was not worried about charisma. What mattered with him was efficiency. This new type of business 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 obsession with detail, his obsession with studying.

**[0:38:21] David Senra:** So much so that he's 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. I should get a giant soundproof office now that uh and library now that Bernard has it. So it says he hesitated 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.

**[0:38:43] David Senra:** LVMH was now quoted at only 1,200 francs. It was down 50%. So he goes to his mentor, the guy Lazard's, and he's like, let's run launch a raid, and Antoine gives him excellent advice. He says Antoine calmed him down. Wait until they come looking for you. Okay, so at this point, we need 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 on their partnership only lasted a few months before Bernard comes in.

**[0:39:16] David Senra:** So you have Henry Rochemere, uh, he's uh one of the co-founders of LVMH, uh, because he's going to merge Louis Vuitton with Moet Hennessy. 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 of 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.

**[0:39:42] David Senra:** The second co-founder, and these two are going to hate each other, by the way, or 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.

**[0:40:12] David Senra:** So these two guys come together, which I'll read to you in a minute, because they're worried about a takeover, and they're both essentially like, okay, 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 had 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 he just left a let a wolf in the hen house.

**[0:40:37] David Senra:** And so eventually, Bernard is not going to 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.

**[0:41:00] David Senra:** He is in like 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 Thrones 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 describes exactly what's happening in this bus this book right now.

**[0:41:24] David Senra:** 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 his episode that he just did with on Invest Like the Best, a killer to get the job done.

**[0:41:56] David Senra:** That was Doug describing him and his partner Mike, who scaled Sequoia from 150 million dollar 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, because I always think is like, what is a real valuable industry right now that no one takes seriously? Because that happens over and over again. I was just rereading my highlights from um the early one of the I read like thirteen books on the early automobile, uh, thirteen biographies on early automobile American automobile founders.

**[0:42:24] David Senra:** 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.

**[0:42:44] David Senra:** And the luxury industry, like the the industry where LVMH is right now, it's one of the biggest companies in the world. Bernard and his family are the, you know, he's the richest person. His family is one of the richest families in the world. thirty, forty years ago, they didn't even think it was a real industry. And I wrote after let me I'll tell you what I wrote after this. Says in the nineteen eighties, the talk of luxury items was not welcome.

**[0:43:05] David Senra:** 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. 3 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.

**[0:43:33] David Senra:** 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.

**[0:43:59] David Senra:** So because Moet was trying to avoid getting raided, this is where they push into this merger, right? Which is going to c to 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 recommend I'm reading my own notes. How Henry Recremere ran uh Louis Vuitton, expand, control distribution, do the opposite of low quality competitors. So it says he had a double strategy.

**[0:44:25] David Senra:** Uh he wanted to make uh Vuitton a high prestige brand name symbolizing luxury distant voyages and great adventures by means 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 like 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

**[0:45:06] David Senra:** far east and so Racomere 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.

**[0:45:28] David Senra:** And so the chapter that's describing, like Henri Racomere's uh career, it ends with this fantastic line that is like a precursor to where the story's about to turn and where to much to Bernard's uh own benefit, Racomere'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 Hennessy, and then he's going to bring in the Wolf and Cashmere, which causes him to be kicked out of the company in about a year and a half from here.

**[0:45:58] David Senra:** And so you have two founders merging together, not realizing that they both want to 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.

**[0:46:23] David Senra:** 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, in that part, you're right. It is going to create a great French institution. It's not, it's just not going to 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 kneel.

**[0:46:50] David Senra:** 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 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 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.

**[0:47:14] David Senra:** I just decided it was going to be uh last time I reread it, it was episode 200. So I had the idea. I was like, oh, every hundred episodes, I should just read Dyson's autobiography, the first one that he wrote, not the second one. He wrote another great one, that's episode 205 when he was like seventy. But the one he wrote when he was like forty five after just going through fourteen years of hell is just absolutely fantastic.

**[0:47:32] David Senra:** And so this idea of like uh having a tattoo that just says control right and like somewhere on like 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 which Bernard is not going to allow at

**[0:48:11] David Senra:** that point because 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 because uh Chevalier has this quote that happened before I think their agreement.

**[0:48:32] David Senra:** 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, okay, where's the new headquarters of LVMH?

**[0:48:56] David Senra:** This is, I wrote down here, never underestimate human pettiness. They pick a location, but Rochemere says, nope, he's not even going to 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.

**[0:49:23] David Senra:** 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 fire fighting over the interior design of the office. Co-founders that fight over everything, especially the unimportant. It's 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.

**[0:49:48] David Senra:** The co-chairman took a malicious ple pleasure in provoking each other. So we're going to fight over the location office. Now we're fighting over the decoration of the office. Now we're going to go, we're going to, we're going to step up our level of pettiness. We're going to fight over the new company letterhead. But let's not stop there. When we do promotions for our new company that we both want to succeed, let's take something that should take two minutes and let's take this, make it take hours.

**[0:50:13] David Senra:** 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 inabout inability of the LVMH co-founders to work well together is so important to understand.

**[0:50:41] David Senra:** 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 crash of 1987, we remember, remember, it goes back to what Charlie Munger said.

**[0:51:13] David Senra:** 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.

**[0:51:43] David Senra:** Bernard is doing the exact same thing at this point in his life. So let's go into that. 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 1.5 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?

**[0:52:07] David Senra:** 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.

**[0:52:33] David Senra:** He could say all this more easily as he had battle funds of around 6 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 Rachemere, who went and sought him out in hopes of ousting his partner, Alan Chevalier.

**[0:52:59] David Senra:** Arnault had come to Rochemere's notice. It appeared Arnault had the same approach to the world of luxury luxury goods. Bernard's young age, check this out. Bernard's young age was a decisive factor in Rachemere's decision. He could not become a rival, he thought. Why did he think he couldn't become a rival? Because I'm a seventy six-year-old, unbelievably successful person. This is thirty five. He Bernard's thirty five. Yeah, he's sharp. Maybe we can get him to succeed in like five, and he can run the company in like five, ten years.

**[0:53:29] David Senra:** 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 Rachemere and Arnault are taking place in great secrecy. Guess what? Arnault's also going to have secret meetings with Rachemere'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 going to give you the punchlines here because it's so it's like almost too much detail.

**[0:53:53] David Senra:** Essentially, 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 Rachemere 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 Rachemere. See, this 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.

**[0:54:21] David Senra:** 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 twenty ninth, 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 set up that Antoine taught him to follow up on his attack.

**[0:54:51] David Senra:** 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 Bozak. Immediately, he transformed Dior Couture into a holding company, allocated its stake in LVMH and offered the capital to the holding company 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.

**[0:55:20] David Senra:** And so eventually, Rockimer realizes, Oh, no, he switched sides, and he realized, Oh, 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 ten times and I probably still wouldn't understand it completely. The main idea that jumped out, the one that I want to remember, is the fact that Bernard, remember, he gets in when there's this huge crash, that's his first when he starts first accumulating shares.

**[0:55:48] David Senra:** Now there's so much buying and that's happening in secret. He's raising so much money to buy stock that the stock price is soaring, and this is the main part 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 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?

**[0:56:14] David Senra:** What at the time, it's like, how crazy is this? At the time, it looked expensive. What looked expensive was actually unbelievably cheap, and no one saw it. But Arnaud, so it says at one p.m. Uh, Arnaud attacked, the shares soared to 4,720 francs. Remember, he bought in, started buying in at what, like, twelve fifty, et cetera. This was a record level. Faced with this explosion in the price, Rachamier, a good financier, lightened his portfolio of LVMH shares.

**[0:56:41] David Senra:** 80,000 shares were sold. Who do you think bought it? Arnaud continued buying in two sessions on January fifth and sixth, he managed to buy up 800,000 shares, 8% of the of the existing LVMH shares. By Friday, January, six at six p.m. 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 mentioned earlier.

**[0:57:05] David Senra:** 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 forty, he is forty 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.

**[0:57:31] David Senra:** There will be no power vacuum. Now he had to deal with the aftermath and let it known this is about the dictator, right? 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's forty when he says this, and over the next thirty something years, he this is exactly what he does.

**[0:57:55] David Senra:** Arnault said he wanted to make LVMH the biggest luxury goods group in the world. He said that at forty. And so even though Bernard is unanimous chairman, right? He's got to fight for like another year and a half, something like that, because Rockimer is refusing to give up. He's believed in perseverance. He says if he had to fight, he would fight to the end. He would not let this youngster, how many times have you used that word to describe him?

**[0:58:18] David Senra:** Like three times in the book, it's like, 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 ten years to rebuild. The aggressiveness of this young man surprised him. He had been wrong about Bernard. This is very fascinating. He had 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.

**[0:58:43] David Senra:** He had been wrong about Bernard. He'd said that he had a premonition. When I signed the alliance pact with him in June nineteen, eighty eight, I held out 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 said this towards the end of his career.

**[0:59:08] David Senra:** 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 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, just giving him his powers.

**[0:59:35] David Senra:** 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, was, you know, in the eighteen hundreds. But listen to 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.

**[0:59:58] David Senra:** 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 Rockemer.

**[1:00:30] David Senra:** I just want to point out, this is exactly what Rockefeller was called as well. Rockemer starts insulting Bernard in the play, in the press. So at one of their meetings, he approaches Rockemer 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. The Rockemer's response here was actually kind of funny. I made no attack, I just made an objective statement.

**[1:00:54] David Senra:** And so, even though he made a bunch of errors, like first merging with Moet Hennessy and then inviting Bernard in, he you got to like this old guy, like 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.

**[1:01:18] David Senra:** He liked to fight, and in return, Rachmier perfectly identified. Now he, you know, he underestimated his opponent, didn't really understand who he was. Now dealing with him, he goes, Oh, 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 episode, 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 is not in this book.

**[1:01:49] David Senra:** 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 going to. I'm taking the quote from the business breakdown episode and tying it into where we are in the book.

**[1:02:16] David Senra:** The young Bernard knew that he was going to do this. So he's going to 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.

**[1:02:44] David Senra:** 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 the businesses and increase their motivation. That's a nice way of saying he's going to 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.

**[1:03:13] David Senra:** 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. And so eventually, Bernard wins, he gets Rachmier out of there, and then there's 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.

**[1:03:47] David Senra:** 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 11 billion francs. He had to get out of debt and, most importantly, build up his war chest again.

**[1:04:17] David Senra:** 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.

**[1:04:46] David Senra:** 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.

**[1:05:13] David Senra:** 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.

**[1:05:40] David Senra:** 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.

**[1:06:16] David Senra:** 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. Rachmier is an iron fist in a velvet glove. Arnault is an iron fist in an iron glove. If Arnaud 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.

**[1:06:44] David Senra:** 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.

**[1:07:19] David Senra:** 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 296 books down one thousand to go, and I'll talk to you again soon.