What stands in the way of a deal between Richemont and Farfetch?

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Discussions of an impending deal between online luxury players Yoox Net-a-Porter and Farfetch have been muted since this spring, months after a $ 1.1 billion mega-deal brought Farfetch together, the owner of YNAP Richemont and the Chinese Internet giant Alibaba. As TFL reported at the time, a close reading between the lines of “global strategic partnership” – which saw Alibaba and Richemont invest $ 600 million ($ 300 million each) in Farfetch Limited, while disbursing respectively $ 250 million for a combined total of 25%. stake in new joint venture Farfetch China – seemed to suggest the deal could be the first part of a larger, multi-stage transaction between the parties, namely a potential move by Richemont to sell a controlling stake in YNAP to Farfetch.

After months of silence following a breakdown in negotiations between Richemont chairman Johann Rupert and Farfetch founder Jose Neves, the deal is said to be back on the table, the industry’s selling point. Miss Tweed, reporting that Richemont “is exploring several options” in an attempt to offload YNAP to Farfetch. Assuming Richemont doesn’t choose to stay the course and inject money to boost YNAP activity, which is potential, especially given Mr. Rupert’s statement last year that the partnership with Alibaba and Farfetch doesn’t signal a lack of confidence in YNAP, no. The panel shortage highlighted the potential for a YNAP spin-off to Farfetch.

An imminent agreement

A change of control over YNAP would make sense for a number of reasons, including that Richemont – who is best known for its hard-core luxury offerings, such as those from Cartier, IWC, Vacheron Constantin and Van Cleef & Arpels, among other brands – is not particularly versed in the field of technology. This is something analysts were quick to point out when the 33-year-old Swiss conglomerate acquired 100% of YNAP in 2018. There is no need to look any further than the revenue of three CTOs in as many years for a seemingly glaring indication of the group’s lack of a concrete technology strategy, which could very well serve as the impetus for a merger with the more technologically savvy Farfetch.

Beyond that, a larger deal that builds on the alliance with Richemont and Alibaba makes sense for Farfetch, which was founded by Mr. Neves in 2007, given the market site’s quest for growth and leadership. London based in the global online luxury goods space. , which a merger (and the corresponding consolidation) would certainly help it achieve.

Late last year, Mr Rupert denied predictions that the Richemont-Alibaba-Farfetch deal – which he confirmed was not initiated by Richemont – was a preliminary step in a take control of Farfetch by Richemont. He did not deny, however, that this was the first phase of a possible spin-off of control of YNAP to Farfetch. Bernstein analyst Luca Solca touched on the possibility in a “quick” note at the time, questioning whether the alliance is “a preamble to [Richemont] turn YNAP and merge it with Farfetch – or sell it to Alibaba? ”

A potential clue?

There is a possible hint that a YNAP acquisition is, in fact, in the cards for Farfetch: Former Farfetch co-chair Natalie Massenet is leaving the company in August 2020. While Mr. Rupert said in a November call 2020 that Richemont doesn’t have “deadly enemies in the business,” it’s no secret that he and the founder of Net-a-Porter have had a controversial relationship. As reported by Wall Street Journal in 2017, the departure of Ms. Massenet from Net-a-Porter in September 2015 – a month before the closing of the merger with Yoox – was “brutal” and “heavy”.

The trouble seems to have started in 2015 when Richemont, who was the majority shareholder of Net-a-Porter, struck a deal to sell the company to Yoox for “a valuation well below [Ms. Massenet] expected: 1.4 billion dollars instead of 2.3 billion dollars “would have” without first requesting the approval of Ms. Massenet “, according to the BoF. There were also reportedly conflicts between the parties due to the fact that Yoox founder Federico Marchetti was appointed CEO of the new merged YNAP company, and Ms. Massenet was given the title of executive chairman, as opposed to co- CEO.

Due to the price of the deal and the snafu of the title, which could have been read as a demotion, Ms Massenet and Mr Rupert found themselves on opposite ends of a protracted clash that unfolded in the media and under the form of a legal battle. The year-long legal battle ended in a settlement, with a payday “well over $ 100 million” for the founder of Net. Massenet then made headlines when she joined Farfetch as co-chair in 2017.

With such a tense story in mind, it’s not impossible to imagine that Mr. Rupert may refuse to get into bed with another company with Ms. Massenet in a leadership role, and potentially, bet her ouster. as a condition of all Richemont, Farfetch agreement. (It should be noted, of course, that Ms Massenet was not the only board member to leave Farfetch this summer amid “record” quarterly growth for Farfetch; Jon Kamaluddin, Jon Jianwen Liao, Danny Rimer and Mike Risman also resigned, but she was the top ranked girl Neves said Ms Massenet’s departure was “the result of long-term planning”.

At the same time, the New York Times pointed out in December 2015 that there was another related fight going on, as “bad blood lingered” between Richemont and Carmen Busquets, Ms. Massenet’s first major investor for Net- a-Porter, who “worked closely with [her] to get the business off the ground. Like Ms Massenet, Ms Busquets – who also worked alongside Rupert on Net-a-Porter until she sold the last of her Net-a-Porter shares in 2015 – had “bitterly complained” that Net-a-Porter “was sold at far too low a price.

She also took issue with the twinning of the two e-commerce companies, especially since she had proposed “an unmistakably better partner setup” for Net-a-Porter – via a consortium of investors – “than the Yoox transaction” .

The “dispute” between Ms Busquets and Mr Rupert / Richemont lasted for months after the Yoox, Net-a-Porter deal was struck in October 2015. Reflecting on the deal in an interview earlier this year, Busquets stated that “the people around Johann Rupert did not understand e-commerce, fashion or women, and I know that because we have been equal partners with equal rights for eight years. At the same time, Busquets – whose website currently lists its stake in Farfetch as “present” – said of the Richemont-Alibaba-Farfetch alliance announcement that it “sees it as a sign of how far it has come. by Rupert and Richemont. their reflection on the digital frontier.

Stand in the way?

Fast forward, and on the heels of an apparent period of contact and departure earlier this year between the Richemont and Farfetch camps in a potential merger, and following a reported Richemont hiatus in negotiations which continued for much of the summer. , TFL sources say the two sides have been working on a new deal since August.

As for what could stand in the way of a successful deal between Richemont and Farfetch, which has been rumored for months, there could be a potential clash between the two strong personalities Mr. Rupert and Mr. Neves. The first – a shrewd businessman who turned his father’s South African tobacco company into the world’s second largest luxury goods company behind LVMH – has been hailed as the current ‘kingmaker’ of the luxury goods space, according to Bloomberg, as he holds the cards in “what may be the latest luxury consolidation game.” Meanwhile, Mr Neves – who has been credited with helping spark a “paradigm shift” in luxury shopping – is an aggressive brand builder in his own right, which could lead to some sort of conflict between the two. two negotiators.

It’s unclear at this time what, if anything, will materialize in terms of a more extensive tie-up between Richemont and Farfetch. It is also not immediately clear what such a hypothetical deal would do for the NYSE-traded Farfetch share price, which gained nearly 500% in 2020 and has since fallen nearly 50%. from its February high of $ 73.35. Even with such uncertainties in mind, it’s ultimately worth noting that when it comes to sustainable gossip in the fashion industry, there is often at least some truth behind the rhetoric.


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