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Richemont, Farfetch Finally Reach YNAP Deal

Compagnie Financière Richemont S.A. is finally selling a 50.7 percent controlling stake in its money-losing Yoox-Net-A-Porter (YNAP) business.

Richemont has reached an agreement with London-based Farfetch Ltd after nine months. The agreement’s initial stage has Farfetch and Symphony Global acquiring a 47.5 percent and 3.2 percent stake, respectively, in YNAP, with Richemont retaining 47.5 percent. Symphony Global is one of the investment vehicles of Mohamed Alabbar, a longstanding partner to Richemont and YNAP in the Gulf States.

The agreement gives Farfetch the option to take over the remaining YNAP shares within five years.

Once the initial stage of the deal is completed, YNAP will become a neutral platform that has no controlling shareholder—Richemont’s long-sought goal—and help digitize the luxury sector. Under the agreement, Richemont and YNAP will adopt Farfetch Platform Solutions. It will power Richemont’s maisons—giving them omnichannel distribution capabilities, as well as join Farfetch Marketplace and boosting Farfetch’s category offerings—and YNAP. In turn, YNAP will pursue an “asset-light” hybrid retail-marketplace model. The Farfetch platform is already plugged into the inventory of many of YNAP’s luxury brand partners.

The transaction also expands both Richemont and Farfetch’s Luxury New Retail (LNR) objective. Their LNR partnership began when the duo joined forces in November 2020 in a $1.15 billion strategic partnership with Chinese technology firm Alibaba Group Holding Ltd. Their aim was to give luxury brands access to China’s consumers and accelerate the sector’s digitization. At the time, the two created a $250 million investment in Farfetch China, a joint venture where they own a combined 25 percent stake.

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“Today’s announcement is a significant step towards the realisation of a dream I first voiced in 2015 of building an independent, neutral online platform for the luxury industry that would be highly attractive to both luxury brands and their discerning clientele,” Richemont chairman Johann Rupert said. “We knew back then that if we wished to control our own destiny and protect the uniqueness of the luxury industry as it was digitalised, we would need to collaborate as the task was too big to undertake on our own.”

“Today, Farfetch and Richemont advanced significantly our Luxury New Retail vision for the digitization of Luxury. This significant partnership unequivocally establishes Farfetch as a pre-eminent global platform for luxury,” José Neves, Farfetch founder, chairman and CEO, said.

Neves described the launch of Richemont Maisons e-concessions on the Farfetch Marketplace as a “step change in our strategy for hard luxury, which represents more than 20 percent of the Luxury industry globally, but just 3 percent of Farfetch sales.” He said it is an area where “we see much stronger customer demand relative to the supply we have had to date.” The move could pave the way for a potential acquisition by Farfetch, which would “create a complementary portfolio of iconic luxury destinations, appealing to different demographics, price points and regions,” he added.

Citing the opportunity to build further on his long-standing relationship with Richemont and YNAP, Allabar said he was “delighted” to participate in the “realisation of their New Luxury Retail vision,” adding that “our deep understanding of the Middle Eastern luxury market, with its tech-savvy and influential customers, will be of great value to YNAP going forward.”

Under the terms of the agreement, Richemont is set to received 53.0 million to 58.5 million shares of Farfetch Class A ordinary shares. Richemont will also receive $250 million on the fifth anniversary of completion of the initial stage of the transaction, which is expected to be paid in Farfetch Class A ordinary shares. At that point in time, YNAP is expected to be debt-free, with at least $290 million of cash on its balance sheet. Richemont then will make available for a period of 10 years a committed credit facility for an additional $450 million that YNAP may draw upon under certain conditions. Alabbar’s interest will be effected via a share swap connected to a joint venture with YNAP in the Gulf Cooperation Council region. When completed, YNAP will own 100 percent of its business in the region.

The sale is expected to result in a non-cash write-down estimated at 2.7 billion euros ($2.7 billion) on Richemont’s consolidated income statement. The initial stage of the transaction is expected to be completed before the end of calendar year 2023. Richemont acquired its majority stake in Net-A-Porter in 2010, and in 2015 merged it with Italian online e-tail Yoox to create a platform with combined sales of $1.4 billion. It subsequently acquired the 50 percent balance in YNAP that it didn’t already own from the 2015 merger. The deal makes sense because Richemont is well-schooled in “hard” luxury, but lacks knowledge in the technical “know-how” needed to run online businesses.

Should Farfetch acquire the remaining YNAP stake, a “qualified majority of YNAP’s” shareholders may agree to an exit via a sale to a third party or an initial public offering of YNAP shares, which could trigger certain regulatory approvals.

Farfetch has been busy building its category offerings. The most recent was the acquisition of beauty brand Violet Grey in January. Previous acquisitions include Browns and Stadium Goods, and the New Guards Group, a platform for the development of global fashion brands. The company in December acquired Luxclusif as it made a bigger bet on the luxury resale market. 

Farfetch is set to report second quarter earnings results Thursday afternoon.