Richemont and Farfetch are making good on a highly-anticipated deal that will see Farfetch further its quest to build the leading global luxury marketplace by acquiring a 47.5 percent “non-controlling” stake in its closest rival Yoox-Net-a-Porter (“YNAP”). In exchange, Richemont will get a 10 to 11 percent stake in Farfetch and a 2.7 billion euro ($2.7 billion) write-down. There is more to the transaction: In a statement this week, the parties also revealed that Emirati businessman Mohamed Alabbar will convert his stake in an existing YNAP joint venture into a 3.2 percent stake in YNAP. Taken together, Richemont and Farfetch say that this will make YNAP “a neutral industry-wide platform,” and position Farfetch to “potentially acquire the remaining shares in YNAP.”

Amid all of the YNAP-deal-centric headlines, there are a few elements worth considering at a bit more closely. Primarily, there is the timing of the announcement. While sources close to the matter previously told TFL that it would be made public in September, it is difficult not to suspect that mounting pressure from activist shareholder Bluebell Capital Partners may have prompted a shortened timeline. London-based Bluebell – which has been a Richemont shareholder for “1.5 years and had a stake worth 105 million Swiss francs ($109 million)” as of July, per Reuters – has been publicly pushing for change at the world’s second largest luxury goods group. In particular, the firm has been angling to get its co-founder Francesco Trapani on the Richemont board to represent investors holding A-class stock. (SIX Swiss Exchange-traded Richemont is controlled by Chairman Johann Rupert, who owns all the non-listed category B shares in the company.) 

At the same time, Bluebell is urging Richemont to focus its efforts on its jewelry and watches divisions, which include brands, such as Cartier, IWC, Vacheron Constantin, Piaget, and Van Cleef & Arpels, among others, which it believes will enable the company to double its share price in the medium term.

Against that background and in light of Richemont’s quickly-approaching Annual General Meeting on September 7, it makes sense that Rupert’s group is looking to “satisfy the first and ‘easiest’ of Bluebell’s demands,” Jefferies analysts Flavio Cereda and Kathryn Parker stated in a recent note, referring to a deconsolidation of YNAP. This is especially likely, they contend, as Richemont “has been working on this [transaction] for a very long time (presumably not helped by Farfetch’s collapse in share price) and has spent north of 30 million euros on fees, etc.”

In addition to reaching a deal ahead of what is expected to be a “volatile” shareholder meeting next month, the Jefferies analysts note that the announcement was timed “24 hours ahead of Farfetch’s Q2 print when presumably this topic would have been intensely debated.”

What About Alibaba? 

Another element of the YNAP agreement that has gone relatively unexplored is the noticeable absence of Alibaba, which was at the center of in a mega-deal that first brought Farfetch and Richemont together back in November 2020. Richemont and Alibaba invested a combined $1.1 billion in Farfetch, and a new venture specifically aimed at the Chinese market. The partnership between Farfetch, Alibaba, and Richemont appeared to be a neat precursor to another transaction, namely, Richemont selling off at least part of YNAP to Farfetch or to Alibaba. 

Alibaba, however, is nowhere to be found in the latest undertaking, potentially the result of issues that the Hangzhou, China-headquartered company has been facing – from its stock crash this spring and its inclusion on the U.S. Securities and Exchange Commission’s list of companies at risk of being delisted from U.S. exchanges due to a long-running dispute over the auditing to its (and other Chinese tech giants’) dealings with the Chinese regulators over algorithm data. “In the end, it seems to us that Farfetch [is] the only possible acquirer of YNAP (no sign of Alibaba or the brands often mentioned),” per Cereda – and it “called a lot of the shots here.” 

As for the other, “often mentioned” brands that are similarly absent from the Richemont-Farfetch deal, the most obvious is Artemis, the Pinault family investment arm that controls Kering, which is an existing investor in Farfetch. Richemont and Kering are closely aligned: They maintain a strategic eyewear partnership (Kering Eyewear produces glasses for Cartier and other Richemont-owned brands), recently launched a joint jewelry-and-watch sustainability project, and have prompted reports of a prospective merger of their own over the years.

LVMH was almost certainly never in the cards given long-running strife between the two groups and their respective leaders Rupert and Bernard Arnault. One of the latest manifestations of that clash is the legal battle that Cartier is waging against Tiffany & Co., accusing the LVMH-owned jewelry company of poaching employees and stealing trade secrets to build up its “high jewelry” business. And at the same time, Richemont is currently pushing back against Bluebell’s attempts to secure a spot for Francesco Trapani on the Richemont board on the basis that the former CEO of LVMH’s Bulgari brand maintains “a personal relationship with that group’s main shareholder,” Arnault, and is generally “too closely associated” with rival LVMH. 

With those big players out of the equation, Richemont and Farfetch seem to have swapped in another big-wig, Emaar Properties CEO and chairman Mohamed Alabbar, as an integral part of the deal. While Alabbar (via his investment firm Symphony Global) is touted in Wednesday’s release as a key player in the Richemont-Farfetch “partnership,” that may be more marketing spin than cold-hard-fact. There is a chance, after all, that Alabbar – whose Emaar Properties is the force behind real estate like the sweeping and luxury-packed Dubai Mall – simply converted his 40 percent stake in a Middle East-focused joint venture with YNAP into 3.2 percent of YNAP shares because it was the most seamless approach. It is arguably also the only move that makes much sense for Alabbar from a liquidity perspective; assuming that Farfetch does ultimately acquire the remaining stake in YNAP from Richemont, Alabbar’s stake in YNAP will convert to Farfetch stock. 

Looking beyond the parties to what Richemont and Farfetch are rightly calling “a landmark transaction,” the deal raises some questions for others, such as Armani, for example, which is the only sizable name that still relies on YNAP’s Online Flagship Stores (“OFS”) division to power its e-commerce operations. Given that OFS is “carved out of the transaction” and will remain with Richemont, Armani will be put in a difficult position in the event that Richemont is unwilling to provide the investment and other necessary resources/features that Armani requires to run its e-commerce business. In a likelihood, Armani will be left with little choice but to internalize its e-commerce operations as quickly as possible to reduce losses in online sales. 

Moving Forward

Looking ahead, Richemont has a put option requiring Farfetch to acquire all the remaining YNAP shares that Farfetch does not own at the time of exercise, at fair market value, exercisable at any time from the third to the fifth anniversary of completion of the initial stage of the transaction. This is subject to YNAP achieving positive adjusted EBITDA in the 12-month period prior to exercise, as well as in three of the four quarters over that same 12-month period. In other words, if YNAP does not turn a profit within the next five years, Farfetch is not obligated to complete the merger. 

If things go as planned, Richemont will become Farfetch’s second-largest shareholder, following only behind Farfetch founder José Neves, a prospect that Rupert is enthusiastic about. The Richemont chairman says he is “excited about the deal, and about Richemont’s future now that YNAP is hitched to Farfetch.” 

As for who will lead the charge at the “new” YNAP, the parties confirmed that they will replace current CEO Geoffroy Lefebvre, who was appointed by Richemont in late 2020, upon completion of the first stage of the agreement. One name is, of course, enticing to consider: Natalie Massenet, whose company Net-a-Porter was wholly owned by Richemont when it was merged with Yoox in September 2015. As much of a full-circle moment as having Massenet at the helm would be, such an appointment is probably unlikely. Massenet’s departure from Net-a-Porter right before the close of Richemont’s move to merge Net-a-Porter with Yoox was reported to be “abrupt” and “fraught,” and as TFL previously speculated here, given the history here, it would not make for an uncomplicated appointment. 

A Monopolized Market in the Making?

With Richemont and Farfetch embarking on a powerful partnership after the close of the first stage of the tie-up, which is slated for the end of 2023, and a potential merger after that, it will be striking to watch what other occupants of the luxury e-commerce space do now. More than any other player, the ball seems to be in MyTheresa’s court, with the Munich-based luxury e-commerce retailer soon to be facing off against a mightier combination of two unified titans. 

Chances are, NYSE-traded MyTheresa’s management has been preparing for this day since November 2020, and has a strategy for how it can differentiate itself and compete against YNAP and Farfetch – not on size but by way of a distinctive selection of brands, exclusive collections, etc., and the upsides that come with being more niche, including the inherent agility. Still yet, MyTheresa – which has a strong handle on product selection, curation, and editorial content, and boasts an engaged pool of high-value customers – has a year and a half to continue to gain ground since the integration of Farfetch and YNAP will be difficult and distracting for the parties, which is something that it can benefit from. The same is true for YNAP and Fafetch’s other competitors, including LUISAVIAROMA and SSENSE.

(It will also be interesting to see how quickly – and easily – Farfetch will be able to get Richemont’s brands on its marketplace and using its proprietary Farfetch Platform Solutions to execute their e-commerce operations. These two elements play no small role in the scenario, as Farfetch is reportedly very keen to get its hands on Cartier’s .com operations and eConcession, in particular. Brands like Cartier could prove to be challenging in that they will certainly demand significant personalization/customization from Farfetch’s platform that may or may not currently exist.)

Finally, with two of the biggest names in the luxury e-commerce space seemingly on track for an ultimate merger, it is tempting to wonder whether the space will operate as a monopoly – or whether a combination of YNAP and Farfetch would be blocked by regulators for this very reason. 

Chances are, this is not a monopoly in the making. After all, while YNAP and Farfetch are the giants in their arena, there will always be a bigger player out there than even the two of them combined: Amazon. And while Jeff Bezos’s venture may not have cracked the code on selling luxury goods (yet), it still sells an estimated $65 billion-plus of apparel and footwear each year, making it the behemoth in the fashion/apparel space – so much so that it unquestionably knocks Farfetch’s “record” gross merchandise value in 2021 of $4.2 billion and YNAP’s annual GM, which reached $2.6 billion for FY2022 (excluding its OFS division), down to size.  

Farfetch’s stock, which jumped by 21.3 percent in the wake of the YNAP news, is up again today following its Q2 earnings report on Thursday. Richemont’s share price rose 3 percent following the announcement on Wednesday, but is down by more than 3 percent as of the time of publication.