Arbitrator Ira Millstein ruled that LVMH could proceed with its purchase of a 58.75 percent stake in DFS Group Ltd. for $2.5 billion from company founder Charles Feeney and attorney Alan Parker. The decision thwarted a challenge by DFS minority shareholders, Robert Miller and Anthony Pilaro.

LVMH said it bought a 49.9 percent stake in DFS, which operates a chain of duty free retail stores worldwide, immediately following the decision. It will wait to buy the remaining 8.85 percent stake until after an antitrust waiting period expires.

The purchase would give LVMH control of the world's biggest duty-free chain and expand its distribution in Asia.

DFS, which began in Hong Kong, has held the Honolulu Airport duty free concession since 1968, when it successfully bid $1 million for the rights. In January, the company was awarded another four-year contract for Hawaii's airports when it offered to pay the state $420 million.

DFS Hawaii president John Reed has said that the sale should have no impact on the local operation.

DFS Group's minority shareholders have said the sale would hurt the company's growth.

However, Millstein - a DFS attorney who was named to resolve the dispute under terms of a 1991 agreement among DFS shareholders - gave the minority shareholders the right to approve any changes in management to DFS, said George Sard, a spokesman for Miller. The decision also made clear that DFS wouldn't be subject to LVMH control over the marketing of goods at the chain's stores, he said.

Miller said that he was pleased by the conditions, which impose "stringent conditions on LVMH's ability to achieve synergies at the expense of DFS and its suppliers." But he did not rule out further legal action.

The minority shareholders have matched LVMH's offer to buy the majority stake in DFS, as has buyout firm Kohlberg Kravis Roberts & Co. LVMH also has offered to buy the minority shareholders' stakes.

"Our offer remains open," said Tim Metz, who works for LVMH's outside public relations firm. "Our hope is that our minority shareholders will see fit to take advantage of its terms."

LVMH, whose brands include Louis Vuitton and Christian Dior, wants to expand in Asia, where it makes most of its sales and where DFS has a big presence.

Traffic at international airports is expected to rise 6.6 percent each year, translating into at least 350 million passengers trekking through international airports and by their duty-free stores every year.