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

0:00 I'm the boss. I should be here on Monday morning. And I should be running the company in person. LVM H had entered a new chapter of its history.

0:07 Bernard O'Neill. 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.

0:16 The stakes were altogether different. Yesterday he had taken over Busak. The ailing textile empire. Today He was in control of L VMH.

0:26 A few days before his fortieth 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.

0:41 Given T. Mauet. Hennessy and Louis Vuitton. All acquired In less than five years.

0:48 He was the first of a new breed of capitalists. Friday the thirteenth, January nineteen eighty nine, 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. They each had played a decisive role in this affair.

1:06 Which had all the makings of a Greek tragedy. They all knew they had no choice. But to go along with our knowledge. He quickly inspected those present. Only one was missing.

1:16 Henri Racomir. 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.

1:27 As soon as possible. The noise of the door opening. Interrupted his thoughts. Rakamir made an entrance. This was merely the first step. Rakamir would fight to the end.

1:37 Against this youngster. whom he had sought out a year before. In the hopes of neutralizing The insufferably pretentious Allian Chevalier, this is the guy that was running Moet Hennessy before it

1:48 Uh merch will be tongue. A mistake which had backfired on him. But Rakimir had no intention. Of letting himself be pushed around. This seventy six year old was thirsting for revenge.

2:00 From now on, he would wake each morning vowing to topple Or not. If he had one quality It was perseverance. At eleven thirty AM a triumphant Bernard Arnault.

2:10 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.

2:23 The second simply announced the appointments of 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.

2:36 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.

2:47 A few minutes later. The news hit the financial markets. Bernard O'Neill. was chairman of LVMH. Nothing could stop him.

2:57 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 Onall. 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 think My friend David Rosenthal from the excellent acquired

3:18 Podcast. He actually found this book was first published in nineteen ninety two in French. Th I've only found one other copy. The one copy that I can find that's for sale right now is Three thousand dollars.

3:29 David paid almost four hundred dollars 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 L VM H. I will leave the link down below where you can just search in your Podcast player for acquired.

3:47 And it should be easy to find their episode. It's titled L VMH. It's like three and a half hours long. um it tells the entire history the entire history of how L VMH came to be. I took notes on their episode and you should hear some of those notes.

3:59 In this episode today. In addition to that, I also listened to the excellent uh episode of Business Breakdowns. It's titled L VMH the Wolf and Cashmere's conglomerate. And that business breakdown is about what L VMH looks like today. Their business models and their financial performance.

4:14 And I of course am going to focus on Bernard O'Nealt, the person as I always do. Let me go right into Bernard's early life. He's born in France in nineteen forty nine and he's the son of a building contractor. He's the third gener he's gonna wind up being the third generation In this family business.

4:28 His father Jean was successful. Life was comfortable without being ostentatious. Sometimes Bernard would stand in the hall gazing at At a portrait of his ancestor. Whom he apparently resembled. This ancestor was a colonel of

4:41 In a Napoleonic guard. And had served in all the emperor's campaigns. If in case you miss it, I just did a first of many ser 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 screen entrepreneurs pre World War Two.

4:56 They're gonna conference me constantly reference. their studying and their admiration of Napoleon. That's episode two ninety four, if you haven't listened to it. I just got a fantastic book called The Mind of Napoleon, printed in nineteen fifty five. 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

5:14 Young studious driven I guess I should tell you this up front that I didn't understand until I read this book and then listen to both the acquired and the business breakdowns episodes. Bernard is like this uh odd combination of I would say Uh Warren Buffett?

5:29 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.

5:42 But it's just idea where like it's like all work and no fun. So we just have this young version of I think it's like ten years old time. We have young Bernard just looking at this picture. Of one of his great ancestors. Right. So says he was an excellent pupil.

5:55 uh he was in the top of his class and all other s in all subjects including P E The boy would listen attentively. A habit That he was never to lose.

6:05 That sentence reminded me 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 Four Two His grandfather Savannah 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.

6:26 I sat and listened to correct prun 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 One because everything was destroyed in France after World War One. 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. And they're talking about his grandfather, except his wheel.

6:50 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. А та тем телс в Норд о Франц. And Marcel Busac.

7:04 Was at his peak. Bernard's grandfather's company built a factory for the textile king. Now why is that crazy? Busac is going to be the company That thirty five year old Bernard Spies.

7:17 Busac 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.

7:30 Bernard targets Busac because he wants Dior. That is the first in a chain of events that's gonna eventually lead him to overtaking and taking over L VM H. 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.

7:45 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 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.

8:01 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. This is an uh one of his great quotes.

8:15 Or it gives you an indication, like the reason um I wanted to go around collecting his quotes in this book and otherwise'cause 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.

8:29 Uh I was not gift enough. 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.

8:47 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, if he's intolerant of slowness and he has an unbelievably long term view. Um, and I think is very b has been beneficial. Member this book Ends. We to get to the end of the book, what he says.

9:06 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 c training course that was uh with McKinsey.

9:19 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 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.

9:38 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 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?

9:51 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 was what I was gonna do, but I wrote down in the margin as well. There's no way that this guy was gonna retire at seventy 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. What he's in like primary school. in college. Now he's out of college and he's working. He's 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 his educational premiers that you and I study.

10:19 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.

10:32 So he's working in his dad's company and he does something that This is if you listen to the episode uh episode two ninety five 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.

10:56 He's working uh with Pierre. Oh. I don't know his name. Beer Goad? Just gonna call him Pierre.

11:02 He's working with Pierre. They say Pierre at the time and and uh Bernard. 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.

11:16 People had To prove themselves. Before they won Arnold's confidence. They had to be good and they n and they had to know how to stand up to him. When they were sure of their case.

11:26 And so on these post it notes, I probably have I don't know, fifty post notes throughout this entire book. I wrote down relationships, relationships, relationships over and over again. We see this Th this is something that Bernard's gonna do for the next two decades to when this book ends. Price still does it to this day. He's just constantly building relationships with relationships with people. That's

11:44 Alright. Very similar to him in the sense of like driven. Talented. And can help him aca 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

11:58 He had perfect manners, so did Rockefeller. He hates intimacy. So do 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 field, he's learning everything about it, and then he steps back and becomes this like master strateg uh strategist.

12:18 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 acquire episode and the business breakdown episode.

12:37 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 also quotes. that he said later in his career that that gave you that indication as well. So his dad does something actually really smart, knows his son's talented. Kinda willing to go along with them.

12:53 And Yes. 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

13:04 He's actually gonna sell his dad's company. And it says Gene Arnaud'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 slight 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. He stepped aside and gave his son carte blanche.

13:27 This was to be the start of the family's fortunes. Bernard then set up a development study uh subsidiary. I'm not gonna go into that because there's so many. This The the the construction of his businesses are so

13:40 difficult to understand that there's multiple times where the authors find it prudent To print out flow charts 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 this company become the leading French property developer

14:00 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.

14:14 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.

14:27 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.

14:38 At two PM 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. 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 the s the success that he was having. So he might be let's say

14:58 Late twenties, maybe early thirties at the most. 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 the business mecca in the world, right? He's going to go to the United States. It is hilarious.

15:16 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 very much by the French establishment Not as a Frenchman, but as an American.

15:29 And so this is like the beginning of that. So he 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's jogging in the mornings he would pass his next door neighbor.

15:45 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 Cluge. The multi millionaire who had made a who had just made a takeover bid For the communications conglomerate Metro Media, this book says Multi millionaire when I listen to the acquired episode.

16:00 I think John w was one of the richest, if not the richest people in the world shortly after this. Um, he went up making he was doing like these leverage buyouts and I think these like takeovers, and I think they said In this book it says multi millionaire, but in the episode They said he made uh five billion dollars, I think, on that deal. This is important because Arnold's gonna use some of these techniques. This is why I'm giving you this background.

16:21 Clue bodied everything are not all 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 wanted Bernard wanted to go far. He had an iron will. At a laboriously won oh my goodness, this needs to be a T shirt.

16:37 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, 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.

16:57 Arnold said. And just as a quick aside, the chapter titles in this book Are excellent'cause they're all descriptions of Bernard and so this one is called A Burning Ambition. And this is the the perfect timing, uh'cause this is the nineteen eighties.

17:11 In the crazy eighties, there's a whole bunch of buyouts, takeovers, LBOs, raids. This is all pre uh L VM H. So Busak at the time, which is the the large conglomerate that that I referenced earlier. That his grandfather building.

17:24 the textile mill for a long time ago. was the largest industrial bankruptcy bankruptcy in Fran in French history at the time. And the public authorities in France are anxious to rid themselves of a business. That was losing them. A hundred million francs a month.

17:39 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, says it all began in nineteen in nineteen seventy eight with the collapse of the Busak Empire, the man who invented pajamas. That's odd. And discovered a young fashion designer, Christian Dior.

17:56 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 Just like Buffett.

18:13 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 entrepreneurial history. Ever you see it over and over again, it's from Henry Kaiser.

18:31 Problems are just opportunities and workflows. Бернли мо серіс вобір. After all, companies 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.

18:46 than anyone else and work on them without leaving anything to chance. That description delve deeper than anybody 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 Dor he's gonna g want he his sights are set, like this I I referenced like the the terminator esque.

19:04 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 bear 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.

19:20 One way or the other. And he tries to buy it. piecemeal is like I'd rather just have deer. I don't want all this other Busak stuff. But you said no, okay, that's fine, I'm gonna get your 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 the United States? They thought this was crazy.

19:42 And so the people that are telling them no, you have to buy the whole thing, you can't buy DR are the ones that actually own Bu Sak now, even though they're losing a bunch of money. It's this I think there's like four brothers. They're called the Willets. Really, you don't have to remember that. It's not important to the story. What is important to me, or to the story, by the Is if you are the one with cash. Time is your friend.

20:00 Right, 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 gonna wait. I'm gonna wait you out. So says the brothers arrogantly stuck to their guns. are now convinced that as time passed the brothers' position would become increasingly untenable.

20:18 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 can have an asset that's hypothetically worth two billion dollars.

20:35 There's some kind of either the blow up of a Uh uh an individual company. Or like this large recession. And suddenly you picked up something for four hundred and fifty that's worth two billion. It's

20:45 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. Arnold was determined. He wanted Busak and he was going to get it. He would apply himself to the task of attaining the support.

20:59 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 notes. Relationships, relationships, relationships. This is an uh an attack vector that Bernard uses over and over and over again. Next page.

21:13 I wrote 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've seen it in multiple stories. They don't take them seriously. There there's other buyers like we don't have to worry about this guy. Who is he?

21:27 Like we're gonna win this. And That's the problem. There is Uh 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.

21:38 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 where the case is like Okay, w like maybe they may be hiding something.

21:54 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 Bosak to a thirty-six year old property developer living in the United States. Trumpeted this other buyer. Sure of himself? Everyone's underestimated Bernard. That's exactly what's gonna happen, man. Why is the point of underestimating somebody?

22:12 Arnold remained inflexible. He wanted control. There was no question of his becoming Uh, the brothers' partners, these are the Willets are like, Oh no You know, we don't want to sell this. There's we're four brothers, we just want a fifth brother.

22:24 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.

22:38 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 o over multiple pages.

22:50 Everyone discouraged. 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

23:04 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.

23:19 And for the last ten 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. few pages ago I referenced this idea, hey, if you're the one with cash

23:33 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. The Willots had their back against the wall and on November fourteenth they signed the agreement. And so now that Bernard has this agreement sign 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.

24:03 To hold off liquidation. So it says as soon as the agreement had been ratified, Arnold 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.

24:25 And this was not easy they had reservations about how able and 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 d the 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 L VMH. He's underestimated.

24:45 by the guy that he's fighting at the very beginning of the book, Rakamir. 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 it uh hostile takeover. So they want some allies. That's why he's called the you know the wolf.

24:58 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, ten years. I'm going to actually control it now. And so that's another example of somebody underestimating him. This is amazing.

25:16 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 French 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 th they play a huge role. His mentors actually uh very plays a very important role and works out Lazards for that.

25:39 But The reason The details I guess are 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.

25:54 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 So he's a rejected to Harvard Law School.

26:03 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 Cultivating relationships.

26:20 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 much money. He's gonna make quick work and turn that around. A couple of years from now.

26:34 uh on the acquired episode they said he was uh within like two or three years took a failing asset and wind up producing like a hundred 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 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.

26:55 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 DR 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 boutique. Their ready to wear uh collection had been a failure.

27:12 They had a troubled atmosphere, a bad culture. It was impossible to manage the patchwork of 260 licenses worldwide. All this, such as 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, Uh let me create a powerful brand. He's got something that's rare and very differentiated and valuable. Is it possible to manage the patchwork of two hundred sixty licenses worldwide?

27:32 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 say, he wants to own his own distribution. It's extremely important. It's valuable then, really valuable now.

27:47 Before I get there though, something else that popped out of the book that was very interesting. Is Arnold always bets on talent. Um my friend Sam Hanke has this great quote. He says, People are really Uh people really are power law.

27:58 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 Name Christian Crawl. I actually looked that name up. There's a funny uh Video on

28:11 I typed in how to pronounce Christian Uncle. on YouTube. And it's just like a 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 uh he's so special, I'll make a plan for him. So says uh Bernard was interested in this under appreciated designer. He was certain.

28:32 That he should not let Christian Lecron. 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.

28:43 Rockefeller meets 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 seventy million francs down initially and then they agreed to invest another two hundred to two hundred fifty million francs over the next five years. Large point here, just remember, he always bets on talent.

29:06 So let's go back to what I just mentioned that he wants to own his own distribution. He has a learning machine. He's like, This doesn't make any sense what Dior's doing. We're gonna change that. Learning from what he saw at Dior, Arnold 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.

29:26 This took a long time to construct. This is what I mean if you hear him talk. He says like Sophie's 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

29:50 You have Bernard. Terminator. Oh no. Or not, 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 business. 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.

30:05 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 Worse thing you could do.

30:14 It's usually when people have success, they let their foot off the gas or they get comfortable. And the line that I the maximum that's in my own mind to avoid that is if you go to sleep on a wind, 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. Arnold did not stray from his path, relentlessly. He pursued his ascent and seized every passing opportunity.

30:33 And knowing like myself on that page is like Jeff Bezos. Or no. 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.

30:48 And this chapter ends with just one sentence. Bernard O'Nault's upward mobility was gaining momentum. 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 nineteen eighty four. uh in the Paris that the Paris Stock Exchange experience a new awakening is the line in the book. This is what I mentioned earlier about the crazy eighties. Anyway it's study this period knows it's just absolutely insane. Buyouts, takeovers, rates.

31:16 starts buying into uh L VMH I think in nineteen eighty seven and has complete control by nineteen eighty nine, I think. Let's go back to the beginning of the book to make sure I'm right. Yeah. Friday, January thirteenth, January uh nineteen eighty nine. Okay. And we're also gonna see that Bernard, like most efficient creation entrepreneurs, they use These economic downturns to expand.

31:34 Most humans just run away. They're in bad financial positions, they cower. And 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.

31:46 So this is gonna hap that's the the the crash in October nineteen eighty seven, 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 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 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. Uh, sometimes Bernard accompanied his friends in he in these rates.

32:19 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.

32:39 In such a c 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 Mungerall did. They sought out high quality people.

32:55 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 you wanted to do is 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.

33:15 It from the Willow 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 to eat. He's gonna control as much of his business as possible.

33:29 So he was raising money. to buy out these brothers and I was 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 Busack. 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

33:46 He would never have his hands free and would 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.

34:01 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 Yeah. 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

34:15 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 or 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

34:36 Burnheim. I'm gonna call him Antoine. It says Antoine's the true architect of Bernard's meteor career. Antoine had made Bernard his protege And a favorite of the Lazard stable. This is what I meant about this like financial mysterious and powerful organization.

34:51 The banker was undoubtedly the one who fascinated the chairman of DR 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

35:09 He was the banker undoubtedly. Was the one who fascinated Bernard the whole time. And so we see that Bernard's getting this very valuable form. Of education.

35:17 'Cause this banker, Antoine, is revealing to Arnold the workings of the financial world which he mastered with Machiavellian perfection. Of Bernard. So now you see you have the banker Antoine. describing his protege. Of Bernard, he said simply.

35:32 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.

35:48 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 fifty one percent of your money and of capital in company A, It is better better to have fifty one percent in a purely financial company B. Which itself then holds fifty one percent of company A.

36:10 One therefore also has control of company A By dividing the initial capital outlay. This reasoning can be continued. Infinitely. That sounds confusing.

36:22 They gave you the great a great metaphor here to understand it. The basic concept of techniques Is called cascades. Russian dolls. Or even stove pipe hats. And it is old as the world itself.

36:33 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 O'Noah.

36:48 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 Busak, 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

37:08 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 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 Stark market. Stark market.

37:25 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 looked

37:44 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. He was not worried about charisma. What mattered with him was efficiency.

37:59 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 up 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.

38:21 So much so that he's ca he has a soundproof office, which is hilarious because they record these uh podcast in a soundproof. Booth looks like a phone booth, that soundproof? I should get a giant soundproof office now that uh and library, now that Bernard has it. So he says he hesitated to examine several companies uh a week in minute detail. The stock market crisis of October nineteen eighty seven attracted his attention to a share.

38:41 Which was plummeting in value. L VM H was now quoted. At only twelve hundred francs, it was down fifty percent. So he goes to his mentor, the guy at Lazards, and he's like, Let's run launch a raid.

38:55 And Antoine gives him excellent Advice. He says he Antoine calmed him down. Wait until they come looking for you. Okay, so at this point we need to h to introduce two characters are really important.

39:07 To the story. They're going to be the two co founders of L VMH. I had no idea that they They were all their partnership only lasts a few months before Bernard comes in. So you have Henry Rockamere, uh he's uh one of the co founders of L VMH.

39:20 Uh,'cause he's going to merge Lou 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. Nineteen seventy seven.

39:35 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, the and these two are gonna hate each other, by the way, are is Alion Chevalier. He is the one that ran Moet Hennessy.

39:50 Uh he merged Moet. Uh with Hennessy he owned he also owned a license For the Christian Dior perfume. So

39:58 At this point Bernard, because he got Busak. owns Christian Dior. But he doesn't own the Christian Jar perfumes. They're two separate businesses. Perfumes are probably, if I'm not mistaken, the more valuable like the more not the more valuable.

40:10 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 So w if we combine ourselves, we're less likely to be taken over and then They wind up having a there's like a

40:25 Did you just a did it just clash. They have hilarious quotes in the book about like marrying a fish or something. I'll read to in a minute. They're discontent. opens the door to bring in Bernard and then not realizing that he's left a let a wolf in the hen house. And so eventually Bernard is not gonna like either these two men. That is not the case at the beginning. In fact

40:42 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

41:01 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.

41:15 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. He says, Those on the margins often come to control the center. Those on the margins.

41:30 often come to control the center. And the line I saved underneath that one. is also a description. Of Bernard. The world is built

41:40 By killers. Both of these men have since passed away, but if they were alive and we can ask them, I bet you they would say that Bernardo Nall was a killer. And to use the line from Doug Leone on the uh his episode that he just did with on a vest like the best. A killer to get the job done.

41:56 That was Doug describing him and his partner Mike, who scaled Sequoia from a hundred and fifty million dollar company to think eighty five billion dollars of asset center 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?

42:14 'Cause that happens over and over again. I was just rereading my highlights from Um the early one of the I I read like thirteen books on the early automobile, uh thirteen's 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 thirty six hundred 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.

42:44 And the luxury industry, like the the industry where L VMH is right now one of the biggest companies in the world. Bernard and his family are the you know, the he's the richest person. His family's one of the richest families in the world. Thirty, forty years ago.

42:57 They didn't even think it was a real industry. And I wrote after l I'll tell what I wrote after this. says in the nineteen eighties the talk of luxury items was not welcome. The term luxury still had connotations of the craftsman. It had nothing to do

43:11 With the real industry. Arnold changes that. So let's go back to this idea of the importance of relationships. So in nineteen eighty seven, Moet entered a period of great anxiety.

43:22 Three billion American dollars were looking for a French ally to attack Moet. Unknown hands were amassing large numbers of sharing the stock market. The founder families of Moet Hennessy now only controlled twenty two percent of the capital. The Moab management was unable to identify the Raider. It soon became clear that the acquisitions were being carried out via this other company

43:40 Whose chairman Was the French friend that I couldn't pronounce earlier, that was that green male guy I mentioned earlier, who was a friend of Bernard O'Neill. So Moet goes for protection. Who do they go for protection? They go to Lazarus.

43:52 The second in command of the bank of Lazarus, 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 co to do

44:06 Create the company that now Bernard controls. and built all of his family's wealth. L VMH. And so then it gives us some background on how Henry Recom I'm reading my own notes. How Henry Recomir ran uh Lou Vuitton expand. control distribution do the opposite of low quality competitors.

44:23 So it says he had a double strategy. Uh he he wanted to make uh Bhutan a high prestige brand name symbolizing luxury, distant voyages. and great adventures by means of s of a sophisticated advertising Policy. But also

44:36 He wanted to sell throughout his products throughout the world and control And own his own distribution. And this is what I meant earlier, but this shocked me in nineteen seventy eight. There was only two Vutaan company

44:47 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.

44:59 And yet they would out source. uh the creation of the product to like lower cost areas of the world. What the book calls the Far East. And so Rackhamere had this good idea. It's like, what if we reverse that?

45:10 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?

45:23 Eight years goes by. They own a bunch of shops and they're making two hundred million a year in profit. And so the chapter that's describing like Henri Racemir's Uh career.

45:33 It ends with this fantastic line that is like a precursor to where the story's about to turn and where w to Much to Bernard's. Uh on benefit. Rakomir'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?

45:49 because he's going to merge with Moad Hemis 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. And so you have two founders merging together, now 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 O'Nealt.

46:11 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

46:33 Of one of the greatest French institutions. Well in that part you're right. It is gonna create a great French institution. It's not it's just not gonna be run by you. And wait till we get into the pettiness. between these two co founders, which again

46:46 The fact that they couldn't go wrong, the fact that they picked the wrong partner was their death kneel. I had an 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.

46:59 One on each forearm. One one forum. Says watch your costs. And on the other forum It says control.

47:07 And so my favorite book out of you know the almost three hundred 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 three hundred. I just decided it was gonna be uh last time I reread it. It was episode two hundred. So I had the idea 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 two of five when he was like seventy.

47:26 But the one he wrote when he was like forty five, after just going through fourteen years of hell, is just absolutely fantastic. And so this idea of like Uh having a tattoo that just says control. Right in like somewhere on like C every day. Is a line from Dyson's autobiography.

47:41 Uh, where he says different 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.

47:53 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

48:05 Like merger And then fight and then they try to reverse merger that that which Bernard's not gonna h 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.

48:21 And so let's go into why was thinking about that. Friction between the two most powerful men and LVMH surfaced immediately. Each one wanted to be preeminent. And it's funny'cause uh Chevalier has this quote that happened before I think the 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.

48:40 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 L VMH? This is I wrote down here, never underestimate human pettiness.

49:00 They pick a location, but Rakamir Says no. 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

49:12 Верфас тер ікул дистанція. 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

49:29 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 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.

49:48 The co chairman took a malicious pl pleasure. In provoking each other. So we're gonna fight over the location office. Now we're fighting over the d decoration office. Now we're gonna go We're gonna Yeah.

49:58 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 want to succeed.

50:09 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.

50:25 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 the inability Of the L VMH co founders to work well together is so important to understand. Personal differences made the whole structure more fragile.

50:44 Personal differences. made the whole structure more fragile. This dissension at the top opened up a breach for a potential intruder.

50:53 Bernard. Terminator or Nault is common, guys. The descension at the top of LVMH opened up a breach for a potential intruder. This was to be Bernard O'Nod's opportunity. He was already waiting in the wings. And so when he sees that stock drop. During the the crash of nineteen eighty seven, we remember remember it goes back to what Charlie Munger said, Moran 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.

51:19 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.

51:32 Buffett has a very positive Affable public persona. That is Cold. Blooded.

51:38 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 secretly.

51:50 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 them the money?

52:07 One institution is Credit Leon A, the other is JP Morgan, and then they also manage JPO 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.

52:26 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 L VM H, right?

52:44 Uh, there was talks of a possible takeover bid for the for the group, LVMH, but nobody then imagined that Bernard O'Naught could have been a been a possible predator. Especially on Re Rachemir. Who went and sought him out? In hopes of ousting his partner, Alan Cheveler. Arnold had come to Rakamir's notice. It appeared Arnold had the same approach to the world of luxury g luxury goods.

53:06 Bernard's Young age, check this out. Bernard's Young age Was a decisive factor in Rakomir's

53:14 Decision. He could not become a rival, he thought. Why did he think he couldn't become a rival?'Cause I'm a seventy six year old. unbelievably successful person. This is thirty five he m Bernard's thirty five. Yeah, he's sharp.

53:25 Maybe we can get him to succeed in like five and he can run the company in like five, ten 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 Rakamir and Arnold are taking place in great secrecy. Guess what? Are not also gonna have secret meetings. with Rakamir's partner that he hates that he's trying to get out to.

53:47 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 Racemir was still counting on Bernard to overcome Chevalier. Chevalier was convinced that he had found

54:10 That in Bernard he had found himself the support necessary to neutralize Rakamir. 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 nineteen eighty eight.

54:32 Remember he doesn't get control until the next year. He does not have full control yet. As of July twenty ninth, nineteen eighty eight, he owns about twenty seven percent. 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

54:57 of the Dior company. Until then Dor Catrol was held a hundred percent through Bozak. Immediately he transformed Yarcour. into a holding company allocated its stake in L VM H and offered the capital to the holding company and o and offered the capital of the holding company to private investors.

55:12 Why did he do that? Because this brought Bernard three point three billion francs. Money he's going to use to buy more shares of the L VMH. And so eventually Rachemir realizes oh no, he switched sides. And he realized oh, like this part I thought had a partner and now he actually he's My predator.

55:29 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 he s he he gets in when there's this huge crash. That's his first the uh when he starts first accumulating shoes. Now there's so much buying and that's having its secret, he's raising so much money to buy stock.

55:52 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.

56:02 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?

56:14 What at the time there's like How crazy this at the time. It looked expensive. What looked expensive. was actually unbelievably cheap and no one saw it but Arnaw. So it says at one PM

56:26 Uh or not attacked. The shares soared to four thousand Seven hundred and twenty francs. Remember he he bought in started buying it what, like twelve fifty, it said? This was a record level. Faced with this explosion in the price, Rakamir, a good financier, lightened his portfolio. of LVM eight shares. Eighty thousand shares was sold. Who do you think bought it?

56:43 Arnold continued buying in two sessions on January 5th and 6th, he managed to buy up eight hundred thousand shares. Eight percent. Of the of the existing L VM eight chairs. by Friday, January sixth, at six PM. It was clear an L VMH board meeting was called in the corridor

56:58 Chevalier Met Bernard O'Neill. A good sport, he told him. I played I lost, I'm resigning. There's the line I I mentioned earlier, only killers survive. Bernardo Knoll had won. Six months had been enough for him to reach the helm

57:11 of the most expensive company in France. The following day he would be sworn in as the chairman of L VMH. That is the last line in a chapter. Called conquest. The next chapter is called The Terror. Remember he is forty.

57:25 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 should be running the company in person. There will be no power vacuum. Now he had to deal with the aftermath and let it known This is about the dictator, right?

57:38 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's forty when he says this.

57:51 And over the next thirty something years, he this is exactly what he does. Arnold 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

58:05 unanimous chairman, right? He's gotta fight for like another year and a half, something like that. 'Cause Rakimir's refusing to give up. Believe in perseverance. He says if he had to fight, he would fight to the end. He would not let this youngster how many they've used that word to describe like three times in the book, tell us. He would not let this youngster, whom he had imprudently introduced into the group

58:22 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 агресивнез

58:30 of this young man surprised him. He had been wrong about Bernard. This is very fascinating. He'd When they close the first deal they did. he had a premonition that maybe he was wrong and this is he wind up being proven right, you know, six or nine months later.

58:43 He had been wrong about Bernard. He had said that he had a premonition when I signed the alliance packs pact with him in June nineteen eighty eight. I held on my hand. It was like holding a limp rag. I felt a gut reaction. Telling me.

58:57 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.

59:06 He said intuition Steve just had 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 pr

59:22 Yeah. 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'cause he thought like God gave you giving him his power he's

59:34 His job is to make as much money as possible and 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 eighteen hundreds.

59:49 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. For Bernard had understood before anyone else. That it was a true industry. That sounds exactly like Rockefeller.

1:00:05 For Bernard had understood before anyone else that it was true industry. To his friends. Who said he was in love with the luxury good industry. Bernard replied. Not at all.

1:00:15 You cannot explain love. My relationship to luxury goods is is really very rational. It is the only area In which it is possible

1:00:25 to make luxury profit margins. He's still having this fight with Rachamir. I just want to point out this is exactly what Rockefeller was called as well. Rakamir starts insulting Uh, Bernard in the pl in the press.

1:00:38 So at one of the meetings He approaches Rachemir in the hallway and he says, You made a libeless attack on me by calling me a bandit and a gangster. That's how Rockefeller was described in his day. Ro Rakamir's uh response here was actually kinda funny. I made no attack, I just made an objective statement. And so

1:00:55 Even though he made a bunch of um errors, like first merging with Uh Moet Hennessy and then inviting. Uh Bernard and He you gotta like this old guy. Like The the

1:01:05 Here's a 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 He liked to fight. And in return Rakamir. perfectly identified. Now he he you know, he he over uh 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.

1:01:33 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 talks about like

1:01:43 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

1:02:01 in consumer preferences, even though L VMH 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

1:02:12 I'm gonna I'm taking the the quote from B the Business Breakdown episode and tying it into where we're in the book. Uh the young Bernard knew That he was gonna do this. So he's gonna target timeless brands that are proving 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

1:02:29 Forty year old. Bernard saying no no no I know What I own is rare. And it will increase in value. Over time.

1:02:37 My tenure objective is that L VMH is 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.

1:02:51 And that those of our group will be among them. My plan for the next six months, so that's his tenure 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

1:03:04 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 Alna is intolerant of slowness. His relative youth emphasized his impatience.

1:03:21 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 Rakamir out of there. And then they 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.

1:03:39 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.

1:04:01 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.

1:04:14 And most importantly, build up his war chest again. 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

1:04:33 with Bernard in complete control. And the author's wondering What is next? But will he be content? With having achieved

1:04:41 What he set out to achieve. He is after all. Only forty two. By the time I'm seventy I've retired long since he says.

1:04:50 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.

1:05:00 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'em apart.

1:05:11 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 nineteen sixty eight, when all of his fellow students had taken to the streets and were on protest march marches. His single concern was that his lectures were

1:05:26 would be canceled. He thought only about one thing. Passing his exams. This solitude was to be his constant companion. He was never holy to trust anyone.

1:05:35 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?

1:05:46 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

1:05:58 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.

1:06:08 But how? His strength lay elsewhere. His success was founded on what can almost be called A Napoleonic strategy. Select the right target.

1:06:17 Attack the enemy at the right time. And in his weakest spot. And leave nothing to chance in the ensuing battle. Rakamir is an iron fist in a velvet glove. Or no

1:06:28 Із ард фіст. In an iron glove. If Arnault has a religion It is efficiency. So much so that people no longer dare invite him to lunch.

1:06:38 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 overturing in his path.

1:06:50 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

1:07:01 He has to be in control of events. It is not surprising that the only man who truly fascinates him Is Giovanni Angellelli. The chairman of Fiat. Embodies both the supremely successful industrialists.

1:07:14 An unequal power. That in our normal's eyes is what it is all about. Politic is ephemeral. Companies have a durability.

1:07:23 Which guarantee the only real power worth having. And Bernard O'Neill has a taste for power And luxury. They knew all this.

1:07:34 about Bernard O'Neill when he was forty two. Із арпіз. That thirty years later He built one of the most successful businesses in the world. That is two hundred and ninety six books down.

1:07:48 One thousand ago. And I'll talk to you again soon.

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