Swiss luxury conglomerate Richemont sold a stake in its online retail business YNAP to Farfetch Ltd., taking a $2.7 billion hit from its failed effort to attract rival high-end brands to the digital sales platform.
(Bloomberg) — Swiss luxury conglomerate Richemont sold a stake in its online retail business YNAP to Farfetch Ltd., taking a $2.7 billion hit from its failed effort to attract rival high-end brands to the digital sales platform.
Following months of talks, e-commerce rival Farfetch will acquire 47.5% of YNAP, which includes the Yoox and Net-a-Porter brands, with Richemont retaining 49.3%. After ceding control of YNAP, which has consistently lost money, Richemont will book a non-cash charge of about 2.7 billion euros ($2.7 billion).
Richemont shares rose as much as 3.3% in early trading Wednesday.
Richemont Chairman Johann Rupert abandoned plans to build a solo luxury e-commerce platform in 2021, opting to concentrate on a tie-up for the YNAP unit with Farfetch.
The veteran investor, who’s grappling with an activist campaign led by Bluebell Capital Partners Ltd., has tried to bring in other major luxury players to create an industry wide internet platform but hasn’t been successful so far.
“We wanted to get this thing on the road,” Rupert said on a conference call with regards to doing a deal with Farfetch without other major luxury players.
The South African billionaire said he still expects other brands to join the platform.
“We’ve been pleading for seven years to have a neutral luxury platform available to all,” he said.
Wider Brand Portfolio
The deal offers a wider portfolio of brands for Farfetch, which is seeking to increase the number of shoppers using its platform in a highly competitive luxury e-commerce sector.
Richemont brands including Cartier, Chloe and IWC will adopt the Farfetch platform for e-commerce sales and most, including Cartier and Vacheron Constantin, will launch sales concessions on the Farfetch portal.
“Obviously, it is a very good deal for Farfetch,” Rupert said.
“It is a very good deal for us because we can start to use their technology.”
Richemont has come under pressure from activist investor Bluebell to shake up its governance structure which gives Rupert control of voting rights even though he holds only 10% of the company’s share capital.
Read More: Activist Bluebell Wants Ex-Bulgari CEO on Richemont Board (1)
Farfetch, meanwhile, is facing questions over its strategy and profitability, with its shares falling 82% over the past 12 months.
E-commerce shares have been widely trounced as investors have soured on the sector as consumers return to stores post-pandemic.
Vontobel analyst Jean-Philippe Bertschy said the deal closes “years of underperformance and heavy investment in YNAP,” by Richemont.
“We have been advocating a better capital allocation and an exit of YNAP for a number of years: it is now coming, at last, at a bitter price,” Bertschy said in a note to clients.
What Bloomberg Intelligence Says:
YNAP is poised for a positive turnaround, leveraging Farfetch’s industry-leading technology and know-how, while Farfetch propels its sales ambitions by offering a broader range of Richemont’s hard-luxury brands.
— Deborah Aitken, BI luxury-goods analyst and Andrea Ferdinando Leggieri, BI consumer-goods analyst
Farfetch’s Ambitions Propelled With Richemont YNAP Deal: React
Potential Acquisition
Under the agreement announced Wednesday, Richemont will receive between 53 million and 58.5 million Farfetch Class A shares representing 10% to 11% of the fully diluted share capital of Farfetch and 12% to 13% of the issued share capital, the companies said in a statement.
Richemont will get $250 million in Farfetch shares on the fifth anniversary of the transaction which is due to complete before the end of 2023, it said.
The companies will have respective put and call options that could see Farfetch acquire all the shares of YNAP if certain conditions are met.
That means Farfetch could end up owning all of YNAP as the transaction “will pave the way to a potential acquisition,” Farfetch Chairman and Chief Executive Officer Jose Neves, said in a statement.
Neves also said on the call he expects Richemont’s YNAP business to return to profitability soon.
“This seems an excellent deal for Farfetch,” Bernstein analyst Luca Solca said in a note to clients.
Farfetch is getting “a very welcome boost to traffic generation via the Richemont e-concessions,” he said.
As part of the transaction Dubai property developer Mohamed Alabbar, Richemont and YNAP’s Gulf States partner, will become a shareholder, alongside Richemont and Farfetch.
Alabbar will acquire a 3.2% interest in YNAP in exchange for its shares in the joint venture with YNAP in the Gulf Cooperation Council.
(Updates with Richemont chairman, Farfetch chairman and analyst comments)
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