Handbags at dawn as France's most famous fashion houses wage war

The elitist world of Paris high luxury, where a customised handbag can cost more than a car, seems to be immune to the financial crisis. The French label Hermès made so much money this year that it is likely to post the best results of its 173-year history and has just opened a lavish new store in the old Art Deco swimming pool of a left bank hotel. But behind the success of silk-scarves and crocodile-skin clutches, Paris fashion is being torn apart by a saga of secretive empire-building and power-struggles dubbed the "handbag wars". Hermès - the family brand and former saddle-maker that prides itself on being more interested in leather hand-stitching than bling - says it is under attack from one of the world's richest men. It emerged last month that Bernard Arnault, owner of LVMH, the world's number one champagne and luxury goods empire, which includes Louis Vuitton and Dior, had secretly acquired a 17% stake in the Hermès family firm. Since then, the two sides have been at war, backed by an army of PR gurus, lawyers and bankers. The dispute is being billed as a David and Goliath stand-off, a battle for the soul of the nations' calf-skin purses, which also calls into question Nicolas Sarkozy's promise for financial transparency on the Paris stock-exchange. Hermès' bosses claim they were stupefied to discover that Arnault had built up a stake using a legal but shadowy derivatives system that masked his true identity. Hermès is one of the world's last independent fashion houses. The family shareholders who still control three quarters of its shares say the firm has deliberately distanced itself from mass-market techniques and resisted conglomerates. The brand's hand-crafted "it-bags", the Kelly and the Birkin, can run to tens of thousands of pounds if customers can stand joining a waiting list that once lasted six years. The Birkin bag's elitist image was not even damaged by suggestions that Victoria Beckham, the queen of bling, owned 100, worth a total of £1.5m. While the world luxury sector's profits dropped in 2009, Hermès has seen an 20% surge in sales in the first half of this year that has kept rising. When the family discovered that Arnault had secretly acquired a stake in Hermès, they warned there was "an intruder in the garden but we don't want him in the house." Arnault is France's richest man, a close friend and former best-man of Sarkozy. He has made his fortune voraciously acquiring firms, often exploiting rivalries within small companies. His luxury goods empire includes Moet & Chandon, the world's biggest champagne maker, as well as fashion houses Marc Jacobs and Celine. Known in France as the "Pope of Luxury", he has long been said to have an eye on Hermès' prestigious brand. It's not the first time Arnault has started a "handbag war", ten years ago his famous - failed - onslaught on Gucci caused a bitter stand-off against another French magnate and friend of Jacques Chirac, François Pinault. The two men have since continued their rivalry in the arts arena, building staggeringly expensive rival art collections. Hermès bosses, fearing that Arnault's business-savy is too tough a match for the family firm, have made a rare public plea for Arnault to get out and offload his shares. Outraged, he promised he was "peaceful" and "friendly", keen to protect the French label from Swiss or Chinese interest. Hermès snapped back that this was "pure invention". Arnault fumed in Le Figaro: "I do not see how the head of a listed company can be qualified to ask a shareholder to sell his shares. On the contrary he is supposed to defend the interests of all shareholders." Patrick Thomas, the Hermès chief executive, said the family was "calm, united and vigilant".