LONDON — Richemont’s long-awaited deal to sell Yoox Net-a-porter, which has received regulatory approval from the U.K. and the European Union, may not complete due to uncertainty around the future of Farfetch.
On Wednesday, Compagnie Financière Richemont, which is set to sell a majority stake in YNAP to Farfetch and Alabbar, sought to reassure shareholders and employees that it has “no financial obligations towards Farfetch,” and it does not envisage lending or investing in the company.
On Tuesday, shares in the embattled Farfetch jumped 22.8 percent to $2.10 following a report in The Telegraph that José Neves, the luxe platform’s founder, chairman and chief executive officer, was working with J.P. Morgan to take the luxury platform private.
In an unusual move, Farfetch also canceled its third-quarter financial update for Wednesday and said: “The company expects to provide a market update in due course.”
In a brief statement, Richemont said that following the recent media reports and the Farfetch announcement, it is “carefully monitoring the situation, including reviewing its options in respect of its arrangements with Farfetch” announced in August, 2022.
It said those arrangements remain “subject to certain terms and outstanding conditions.” Richemont also noted that its maisons and YNAP have not yet adopted Farfetch Platform Solutions, which was part of the wider deal forged in 2022.
“The [maisons] continue to operate on their own platforms,” said Richemont, which was set to work closely with Farfetch on tech, data and e-commerce.
Richemont said it would make a further announcement “if and when appropriate.”
Shares in Richemont were up 1.5 percent at 110.15 Swiss francs in late morning trading on Wednesday.
According to sources familiar with Richemont, there are various scenarios under which the arrangements with Farfetch might not be able to complete.
In addition to the pending disposal of YNAP, the only other tie that Richemont has to Farfetch is a minority stake in a joint venture with Farfetch and Alibaba.
On Tuesday, analysts agreed the potential de-listing of Farfetch could make an already complex deal even more complicated.
Oddo described Richemont’s statement as a “surprise. [Richemont] is distancing itself visibly from what could be going on at Farfetch.” It suggested the agreement with YNAP is “far from certain,” and that Richemont has drawn a line, and “does not want to get involved more into Farfetch.”
The financial services group also said that if Richemont were to take YNAP back in house, any reintegration would be “far from ideal, obviously, but given the modest size of the losses reported within the context of the group, we would definitely think it would be a better solution than becoming embroiled in the Farfetch situation, [which is] precarious to say the least.”
Oddo added the reconsolidation of YNAP would not dramatically change its investment case. “We would stick to our views on Richemont,” it said.
RBC Capital Markets believes the potential de-listing will be a thorny issue for Richemont.
“We foresee a scenario where Farfetch could potentially renege on the current deal; attempt to renegotiate the terms of the deal; or continue with the deal in its current form,” said RBC, adding that, from Richemont’s perspective, there is no best-case scenario at this point.
“If Farfetch de-lists and the YNAP deal proceeds, then on the one hand it would be able to deconsolidate YNAP, however on the other, Richemont would be entrusting the outsourcing of its technology platform for all its maisons to a privately-owned company, which is unusual and carries operational risk in our view,” the bank said.
It added: “If the YNAP deal falls apart, then Richemont would not have achieved its objective of deconsolidating YNAP, however it would maintain control of its technology platform. We view protection of Richemont’s technology platforms as paramount, and believe in a worst-case scenario, Richemont would look for other alternatives to dispose of YNAP.”
As reported last month, the European Commission “unconditionally” cleared the acquisition by Farfetch of a 47.5 percent stake in Yoox Net-a-porter in a decision that had widely been expected.
The approval came seven months after the U.K. Competition and Markets Authority greenlighted the transaction, which was first announced in August, 2022.
The deal was set to complete in the fourth quarter of this year, or early next year.
The deal foresees Richemont selling a majority stake in Yoox Net-a-porter Group to Farfetch and Alabbar, YNAP’s partner in the Middle East.
On completion, Richemont is set to hold a 49.3 percent stake in YNAP. Over the next five years, Farfetch is expected to acquire the entirety of YNAP, subject to certain conditions.
In exchange, Richemont will receive Farfetch Class A ordinary shares, expected to represent 12 to 13 percent of Farfetch’s issued share capital.
When the agreement was struck, those shares were trading at nearly $10. On Tuesday night they closed at $2.10, with the decline in share price further complicating matters for Richemont.
The deal also foresees the acquisition by Symphony Global, one of the investment vehicles of Mohamed Alabbar, of a 3.2 percent stake in YNAP, with the aim of transforming YNAP to a “neutral online platform” for the luxury industry.
Richemont and Farfetch have said they plan to work together to accelerate the quality and global penetration of the Richemont brands online.
Richemont had also planned to leverage Farfetch technology, with YNAP and the Richemont maisons adopting Farfetch Platform Solutions. The maisons were preparing to open e-concessions on the Farfetch Marketplace.
The wheels of the deal are already in motion: In the first six months of fiscal 2023, Richemont reported a loss of 766 million euros following the noncash write-down of assets linked to the proposed sale of a majority stake in YNAP.
Richemont chairman Johann Rupert said the planned sale of YNAP to Farfetch will allow Richemont “to deliver on its global digital strategy” and, at the same time, “to focus on what it does best.”
Neves had promised Farfetch’s tech would be “a game-changer for Richemont’s brands, and allow them to operate in a hybrid marketplace that is open to the entire industry.”
