Lanvin Group has another party betting on its success. In the wake of Meritz Securities Co. committing $50 million in a private placement ahead of Lanvin Group’s NYSE listing this month, the Shanghai-based fashion group announced on Monday that Handsome Corp. – which has been the exclusive distributor of the Lanvin brand in South Korea since 2007 – will join the roster of strategic investors participating in its impending merger with blank check firm Primavera Capital Acquisition Corporation (“PCAC”). Lanvin Group said this week that it expects the $1 billion business combination to close “shortly after shareholder approval,” subject to customary closing conditions. 

“Chances are good that shareholders will approve the deal” during PCAC’s extraordinary general meeting on December 9, according to a recent note on Seeking Alpha, “paving the way for Lanvin Group to meet its previously promised deadline to become publicly listed by year-end.” In an email on Tuesday, Lanvin Group – which consists of Lanvin, footwear brand Sergio Rossi, knitwear company St. John, hosiery-maker Wolford, and menswear company Caruso – alerted TFL that its listing is slated to take place on December 15. It will trade under the LANV ticker symbol. 

As for what the future holds for Lanvin Group, the public listing “will only be the start of a much longer journey,” with the group expected to face “challenges carving out a place in the crowded global luxury goods industry,” the SA note states. In other words, it will likely be an uphill – and expensive – battle for Lanvin Group to amass market share in the luxury segment, which is currently dominated by the likes of LVMH, Richemont, and Kering. 

Lanvin Group's brands

The group’s marquee name Lanvin has seen a string of executive and creative shakeups in recent years, including former CEO Jean-Philippe Hecquet, who left in 2020 after just 18 months in the role. At the same time, other brands, including St. John and Wolford, for instance – which “are known for durable, quality fabrics but suffer from fusty images,” as Quartz’s Tiffany Ap put it this fall – need “significant work” from a consumer perception standpoint. This might be difficult in light of Lanvin Group’s overall lack of luxury expertise; after all, the group falls under the umbrella of Fosun International, a Chinese conglomerate best known for its financial, real estate, steel, and healthcare businesses. 

Facing Challenges, Looking to China

These challenges are not lost on Lanvin Group, which has been engaged in an expansive overhaul ahead of the public listing. One of the first major signals of change came in October 2021 when Fosun Fashion Group announced that it would rebrand to Lanvin Group, which it characterized as “a clear statement of the [its] intent to build a global portfolio of iconic luxury fashion brands.” Since then, the company has not been shy about its ambitions to rival luxury’s most established conglomerates with a group of its own. 

One need not look further than the group’s announcement of the SPAC back in March, in which it touted its “strong foundation in Europe combined with a unique position to capture significant growth opportunities in the world’s largest luxury markets – North America and Asia, where the Group has built an extensive luxury fashion ecosystem.” Specifically, Max Chen, Chairman of PCAC, and Partner of Primavera, the Chinese investment firm launched by Fred Hu, former chairman of Greater China at Goldman Sachs, stated at the time that Lanvin Group boasts “a differentiated strategy to build a luxury powerhouse for a new generation of consumers, especially benefiting from surging luxury consumption in Asia.” 

Not overlooking the importance of the American market, the latter element – luxury consumption in Asia and China, in particular – appears to be the key to Lanvin Group’s future. In an investor presentation released in November, Lanvin Group emphasized the “significant growth opportunities” in Greater China, and its ability to act as an “unparalleled” pipeline to “the largest and fastest growing luxury market in the world” by virtue of it being the first and only global luxury group headquartered in China. Specifically addressing its plans to leverage its capabilities in China, which is expected to become the world’s largest luxury market by 2025Lanvin Group stated in the presentation that it has a “360° brand operation by local team, support from strategic partners, dedicated content and product offerings, and online and offline expansion [opportunities].” 

For a snapshot: Lanvin Group mentions “China” some 50 times in the deck – compared to 6 mentions of EMEA, 13 mentions of America, and 6 mentions of the European market.

A slide from Lanvin Group's investor deck
A slide from Lanvin Group’s Investor Presentation

Still yet, other changes have come into fruition: This spring, Lanvin Group entered into a partnership with Shopify to build a North American digital platform powered by the e-commerce company’s technologies. “Lanvin and Sergio Rossi will become the first of the Group’s luxury brands to transition onto the digital platform in the North American market,” the group revealed in April, “allowing them to unlock new growth opportunities with market-leading digital capabilities in the world’s largest luxury fashion market.” Speaking about the Shopify partnership in April, Lanvin Group chairman and CEO Joann Cheng, Chairman and CEO of Lanvin Group, said that the group’s “legacy-light and digital-native model allows us to integrate Shopify’s disruptive technologies across our portfolio of heritage brands,” making it “even better equipped to capture the significant growth opportunities we have identified in North America.”

At Lanvin, in particular, change is similarly afoot. The swapping in and out of C-level figures appears to have stabilized to an extent under creative director Bruno Sialelli. (Lanvin Group chairwoman and CEO Joann Cheng is still in the interim CEO role at the brand.) While Lanvin does not appear to be rivaling its closest competitors when it comes to buzz worthiness, under the watch of Sialelli, it is bulking up its accessories offerings; the brand, which maintains the title of the oldest French fashion house in operation, has lacked the robust arsenal of accessories (often emblazoned with recognizable logos and/or monograms) that enable big, conglomerate-owned fashion brands to generate revenues reaching into the billions. And its revenues are on the rise. During the first half of the year, Lanvin’s sales rise by 117 percent to 64 million euros ($63 million), a nod to what management says is “the brand’s growing appeal and [its] strong demand among luxury fashion buyers.”

It is also worth noting that Lanvin is trending upwards in terms of Google searches in the U.S.; there is a very good chance, of course, that such searches are being boosted by the impending Lanvin Group IPO.

Google search trends for Lanvin
Google search trends for Lanvin in the U.S.

Meanwhile, Sergio Rossi – which Lanvin Group snapped up in July 2021 – has a new creative director, four new outposts in China, and benefits from the Shopify deal by way of new e-commerce capabilities in the U.S. 

Cheng says she is confident about the future of the group, citing room for growth on a global scale. The American market is responsible for approximately 15 percent of sales for the Group, with the potential for “at least” 10 percent more growth, and growth of nearly 30 percent can be expected in Greater China, which currently represents 14 percent of sales. And shedding light on ambitions on the M&A front, Cheng asserted in connection with Lanvin Group’s first-half report in October that the group is actively looking at “new luxury brands,” namely, those that target Gen-Z consumers and/or brands with a “relatively new business model and a strong online presence.” 

THE BIGGER PICTURE: Lanvin Group’s impending listing follows from earlier IPOs of Chinese titans like Alibaba, JD.com, Baidu, and Pinduoduo, among others, which have been drawn to U.S. as “the home of the world’s largest and most liquid stock market,” according to University of Rochester Simon Business School professor Joanna Wu, who notes that “listing in the U.S. ‘bonds’ a foreign company to America’s stringent litigation and regulatory environments, sending a favorable signal to investors about a company’s quality.” She also states that “a peculiar feature of China’s stock market is that only profitable firms are qualified for listing,” thereby, driving some promising but not yet profitable Chinese firms – like Lanvin Group, which is not projecting profitability until 2024 – “to seek overseas listings, especially in the U.S., because they are ineligible to list at home.” 

Not without issues, some Chinese companies that already listed on U.S. exchanges have found themselves in the crosshairs of a longstanding auditing dispute between U.S. and China regulators, with big names like Alibaba having faced risks of being delisted from American exchanges. Wu states that in addition to scrutiny from regulators in the U.S., “the Chinese government has also come down hard on U.S.-listed Chinese companies,” which saw the “last-minute cancellation in 2020 by Chinese regulators of Ant Group (an affiliate of Alibaba Group)’s Hong Kong IPO, Chinese regulatory sanctions imposed on Didi Global within a week of its New York IPO in 2021 for cybersecurity reasons, and the recent crackdown in 2021 by the Chinese government on the private tutoring sector.” 

Regulators in the U.S. and China reached an initial agreement this summer to help resolve their auditing clash, prompting speculation that roughly 200 Chinese companies listed on U.S. stock exchanges will avoid being removed and that a “pretty strong pipeline” of Chinese companies that want to list on U.S. exchanges in “the coming months” might come into fruition following a striking drop in new listings of Chinese companies in the U.S.

The U.S. Securities and Exchange Commission (“SEC”) is considering requiring publicly traded companies in the United States to make disclosures about the climate-related risks they face. Republican state officials, emboldened by a Supreme Court ruling this summer, have already threatened to sue, claiming that regulators do not have the authority to require such disclosures. As the debate heats up, what is surprisingly missing is a discussion about whether disclosures actually influence corporate behavior.

An underlying premise of financial disclosures is that what gets measured is more likely to be managed – but do corporations that disclose climate change information actually reduce their carbon footprints? While carbon disclosure encourages some improvement, it is not enough by itself to ensure that companies’ greenhouse gas emissions fall. Worse still, some companies use it to obfuscate and enable greenwashing – false or misleading advertising claiming a company is more environmentally or socially responsible than it really is.

Disclosure doesn’t always mean less carbon

Although carbon disclosure is often held up as an indicator of corporate social responsibility, the data tells a more nuanced story. Consider the carbon disclosures made by nearly 600 companies that were listed in the S&P 500 index at least once between 2011 and 2016. The climate-related disclosures were made to CDP, formerly the Carbon Disclosure Project, a nonprofit organization that surveys companies and governments about their carbon emissions and management. (More than half of all S&P 500 firms respond to its requests for information.)

Companies that have proactively disclosed their emissions to CDP on average reduced their entity-wide carbon emissions intensity by at least one measure: carbon emissions per capita of full-time employees. This means that as a company increases in size, it is estimated to reduce its carbon footprint on a per-employee basis. This does not, however, necessarily translate to a reduction in a company’s overall carbon emissions. Much of the decline involved large emissions-intensive companies, such as utilities, that were trying to get ahead of expected climate regulations. Companies that received a “B” grade from CDP actually increased their entity-wide carbon emissions on average over that time. Notably, those in the financial, health care, and other consumer-oriented sectors, which did not experience the same level of regulatory pressure as greenhouse gas-intensive firms, led the increase.

About a quarter of the S&P 500 companies that completed CDP’s annual climate change survey undertook assessments of their business impacts on the environment and integrated climate risk management into their business strategy. Yet, entity-wide emissions still increased.

Earlier research found similar results in the first decade of the U.S. Department of Energy’s Voluntary Greenhouse Gas Registry. Overall, it revealed that participating in the registry had no significant effect on the companies’ carbon emissions intensity, but that many of the companies reported emissions reductions, namely by being selective in what they reported. Still yet, another study, which focused on the power sector’s participation in CDP’s surveys and was published by the Official Journal of the European Association of Environmental and Resource Economists, found an increase in carbon intensity.

‘A-List’ may not be exempt from greenwashing

Even companies that made CDP’s coveted “A-List” of climate leaders may not necessarily be free of greenwashing. A company earns an “A” grade when it has met criteria of disclosure, awareness, management, and leadership, including adopting global best practices, such as a science-based emissions target, regardless of whether these practices translate into improved environmental performance. Because CDP grades companies based on sustainability outputs rather than outcomes, an “A-list” company could be “carbon neutral” when it counts only the facilities it owns and not the factories that make its products. Moreover, a company that has earned an “A” could commit to removing all emitted carbon but maintain partnerships with oil and gas companies to “generate new exploration opportunities.”

Retail and apparel giants like Walmart, Target and Nike – all in the “B” to “A-minus” range in recent years – offer an example of the challenge. They regularly disclose their carbon management plans and emissions to CDP, but they are also part of the industry-led Sustainable Apparel Coalition, which has controversially portrayed petroleum-based synthetics as the most sustainable choice above natural fibers in the Higgs Index, a supply chain measurement tool that some clothing companies use to show a social and environmental footprint to consumers. 

Walmart, for one, was sued by the Federal Trade Commission (and has since settled the case) over products that were “misleadingly” described as bamboo and “eco-friendly and sustainable” that were made from rayon, a semi-synthetic fiber made using toxic chemicals.

Designing a greenwashing-resistant disclosures program

There are three key ways for the SEC to design a climate disclosures program that is greenwashing-resistant. First, misinformation or disinformation about environmental, social and governance factors can be minimized if companies are given clear guidelines on what constitutes a low-carbon initiative. Second, companies can be required to benchmark their emission targets based on historical emissions, undergo independent audits, and report concrete changes. 

It is important to clearly define “carbon footprint” so these metrics are comparable among companies and over time. For example, there are different types of emissions: Scope 1 emissions are the direct emissions coming out of a firm’s chimneys and tailpipes. Scope 2 emissions are associated with the power a company consumes. Scope 3 is harder to measure – it includes emissions in a company’s supply chain and through the use of its products, such as gasoline used in cars. It reflects the complexity of the modern supply chain.

Third, companies could be asked to disclose a fixed deadline for phasing out fossil fuel assets. This will better ensure that pledges translate into concrete actions in a timely and transparent manner.

Ultimately, investors and financial markets need accurate and verifiable information to assess their investments’ future risk and determine for themselves whether net-zero pledges made by companies are credible. There is now momentum across the globe to hold companies accountable for their emissions and climate pledges. Climate disclosures rules have been introduced in the United KingdomEuropean Union and New Zealand, and in Asian business hubs like Singapore and Hong Kong. When countries have similar policies, allowing for consistency, comparability and verifiability, there will be fewer opportunities for loopholes and exploitation.

Lily Hsueh is an Associate Professor of Economics and Public Policy at Arizona State University. (This article was initially published by The Conversation.)

Nordstrom Inc. adopted a shareholder rights plan this week that the Seattle-headquartered retailer says will protect the interests of the company and all of its shareholders by reducing the likelihood that any entity will gain control. News of the “poison pill” – which went into immediate effect on Monday and is slated to run until September 19, 2023 – follows immediately from Mexican department store chain El Puerto de Liverpool S.A. de C.V. (“Liverpool”) disclosing that it has amassed a 9.9 percent stake in Nordstrom, making it the NYSE-traded company’s second-largest shareholder, following only behind former chairman Bruce Nordstrom. 

The adoption of a “poison pill” by Nordstrom, on its own, is not exactly earth-shattering news given that the implementation of such a plan is a common move for companies facing a potential takeover. “Companies have various tools in their toolbox to ward off unwanted advances,” according to Rooney Law’s Allan Rooney. “One of the most effective anti-takeover measures is the shareholder rights plan, also known as a poison pill, [which] is designed to block an investor from accumulating a majority stake in a company and taking control.” In Nordstrom’s case, in the event that a person or entity acquires 10 percent or more of its outstanding shares, the poison pill will entitle existing shareholders to acquire shares of the company at a significant discount with the aim of dissuading a takeover attempt by Liverpool by either making the company less desirable or by diluting the potential-acquirer’s existing ownership stake in the company. 

Not Fashion’s First Pill 

Certainly not the first headline-making shareholder rights plan to be utilized in fashion, Gucci famously enacted a poison pill plan in February 1999 to fend off an unwanted takeover by LVMH. Under the watch of then-CEO Domenico De Sole, the Italian fashion brand issued more than 20 million new shares for employees to acquire, thereby, diluting the 34.4 percent stake that LVMH had quietly acquired to 26 percent. Almost a decade later, Hermès revealed – after landing on the opposite end of an attempted LVMH takeover of its own, one that the Birkin bag-maker characterized as “hostile” – that its bylaws allow it to use poison pills to fend of unwanted bids.

Since then, poison pills – which were first utilized in the 1980s – have gained significant steam. “It is not uncommon at all for American companies, or companies with [domestic arms] that are incorporated in Delaware or some other U.S. state to utilize poison pills in a situation where someone accumulates a large block of stock and where the company’s board fears that [such an accumulation] will lead to a hostile takeover,” Brian JM Quinn, a professor at Boston College Law School, who focuses on corporate law, M&A, and transaction structuring, told TFL. 

Just this year, one poison pill, in particular, took center stage, with Twitter’s board of directors adopting a strategy in April to “protect stockholders from coercive or otherwise unfair takeover tactics” from Tesla head Elon Musk. The move was effective, Quinn says, as it got Musk to “come to the table and pay a premium for the company.” (In furtherance of the $44 billion deal, Musk will pay $54.20 a share, a 38 percent premium to Twitter’s closing stock price on April 1, 2022.)

A Dive into Nordstrom’s Plan

Nordstrom’s recently-revealed plan may not fall outside of the norm of what other companies’ boards would do when faced with such a situation, but there are, nonetheless, some interesting elements at play, most of which call into question Nordstrom’s claim that its implementation of the shareholder rights plan is not a response to any specific takeover bid. A close read between the lines suggests that there is more going on here (of course) than Nordstrom is letting on.

Primarily, it is worth noting that an unprompted adoption of a poison pill is unlikely, as it might not ultimately hold-up for Nordstrom if it is challenged by shareholders given that courts have been unwilling to let such plans stand without the company at issue being able to identify a threat of takeover that prompted the adoption of the plan. A concrete example on this front come out of Delaware relatively recently, with the Supreme Court upholding a Chancery Court decision in November 2021 that shot down oil pipeline company The Williams Cos Inc’s poison pill. Among other things, the court found that the pill adopted by the company in March 2020 (in the wake of a stunning stock market crash) was improper because it was not targeted at a particular threat. (The court also took issue with certain “extreme” provisions, which “seemed designed to circumscribe stockholder activism in general,” Sullivan & Cromwell stated in a note.) 

While Williams cited its desire to prevent stockholder activism during a time of market uncertainty as one of the threats at issue, especially given the fall of its stock price, the court determined that the company’s board was not aware of any specific activist efforts or potential takeovers at play, and struck down the pill.  

Beyond that, the time-limited nature of the poison pill – which expires on September 19, 2023 – further suggests that Nordstrom has, in fact, put the plan in place in direct response to Liverpool’s acquisition. “If nothing happens within the year [that the pill is in place], the pill goes away,” Quinn says, asserting that pill is purely “a defense against a potential acquirer” – Liverpool here – and thus, is “not intended to be there forever.” (In the event that Liverpool goes away in nine months, for example, the pill will disappear on its own after nine months. Or, in the alternative, if Liverpool is still around upon the expiration of the pill, Nordstrom’s board can adopt a new pill.)

The time-limited nature of the Nordstrom poison pill is noteworthy, as it seems to fall in line with a larger trend in corporate governance. Institutional investors and advisory firms do not like it when companies “just have poison pills in place,” according to Quinn, as “absent any other information, pills generally signal that a company is not for sale and even if someone were to come along with a high bid, the board might say no.” As such, this has led to a rise in limited “good governance” pills that expire. 

Against this background, the time limit put on the pill by Nordstrom almost certainly serves as “a message from the board to the company’s biggest institutional investors” that this is purely in response to a specific threat, per Quinn – and not a more general attempt to lock Nordstrom into the status quo on the ownership/operations front. 

Finally, the nature of Liverpool’s filing with the U.S. Securities and Exchange Commission and Nordstrom’s response are worthy of note, with Liverpool filing a Schedule 13G form (as opposed to a Schedule 13D) just days before Nordstrom put its poison pill into place. Used to report a party’s ownership of stock that exceeds 5 percent of a company’s total stock issue, the 13G is interesting here, as it means that Liverpool is characterizing itself as a “passive investor” and disclaiming any present intent to control the company – as opposed to a party with some intent to control or influence the management of the business (such as seeking a board seat), the latter of which would call for a 13D filing. 

Liverpool may be calling itself a passive investor in its filing (which could certainly change and result in an amended filing) and saying that its acquisition of a sizable block of Nordstrom stock comes in furtherance of an effort to “diversify its geographic foothold.” By putting a poison pill in place, Nordstrom is seemingly signaling that it does not believe Liverpool – and potentially for good reason. The types of parties that typically filed 13Gs are large institutional investors that have no interest in taking control of the underlying companies despite the volumes of stock they acquire. Liverpool stands out in that sense, as it is ”not an average passive investor,” just as Musk, who initially filed a 13G in connection with his stake in Twitter, is not a passive investor. 

Given Liverpool’s status as an operating business in the department store industry, Nordstrom is likely right to question its current “passive investor” claim and put a plan into place in order to ensure that it cannot enact a takeover without Nordstrom’s board being able to negotiate an attractive deal for its shareholders.

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.  

Lanvin Group announced n March that it would go public, planning to list on the New York Stock Exchange (under the ticker symbol “LANV”) after it merges with special purpose acquisition company (“SPAC”) Primavera Capital Acquisition Corporation in a move to raise up to $544 million and nab a “pro forma enterprise value of $1.5 billion and a combined pro forma equity value of up to $1.9 billion.” In a statement this spring, Lanvin Group, which rebranded from Fosun Fashion Group last fall, asserted that “through the business combination,” it is aiming “to catalyze growth” both from an acquisition perspective and as a result of “growth across Europe, North America, and Asia.” 

The news about the impending SPAC for Lanvin Group, which maintains majority stakes in Sergio Rossi, Wolford, Caruso, St. John, and its “flagship” Lanvin, follows from Perfect Corp revealing that it would go public on the Nasdaq by merging with Provident Acquisition Corp in a deal expected to value the New Taipei City-based startup, which provides software to beauty and fashion companies, at upwards of $1 billion. And before that, Zegna Group made its stock market debut in December 2021 by merging with Investindustrial Acquisition Corp., in furtherance of a deal that gave a valuation of $3.1 billion. 

While SPACs are not a novel way of raising capital, which roots dating back to the 1990s, they have seen a marked rise in recent years. Last year, a “record” number of de-SPACing transactions were carried out, up from 248 in 2020 (and a total of $83.3 billion raised) to 613 in 2021. An alternative to the traditional initial public offering (“IPO”) process, which is a notoriously costly and time-consuming transaction, mergers with SPACs have been viewed as a quicker, more efficient, and more cost-effective way to go public for target companies, such as Lanvin Group, Perfect Corp, and Zegna Group, among others. 

“Despite the large number of SPACs competing for acquisition targets” in recent years, Akin Gump attorneys Kerry Berchem and Patricia Precel, previously stated that many SPACs – which are essentially shell companies seeking to merge with private companies with the intention of taking them public – “have been able to find targets and close their de-SPAC transactions.” Nonetheless, they assert that SPACs have faced obstacles in 2022, which could serve to tame such sweeping year-over-year growth when it comes to the number of SPAC transactions, as “there are still many SPACs competing for targets, including those with shorter time frames to complete a transaction, [and given that] the SEC may issue new rules governing SPACs aimed at preventing SPACs from evading investor protections associated with a traditional IPO.” 

Beyond that, there is the chance that litigation may sour such deals. Not merely a potential threat, SPAC-centric litigation has come into fruition by way of what Paul Weiss characterized in a client note as “a substantial number of lawsuits” that have been filed by SPAC shareholders, who are “contesting the terms of – or disclosures surrounding – de-SPAC merger transactions.”

The rise in SPAC-related litigation has resulted in only one substantive ruling, which came by way of the Delaware Court of Chancery in January 2022 (In re Multiplan Corp. Stockholder Litigation), in which the court denied a motion to dismiss, thereby, enabling the plaintiffs’ claims against the SPAC’s sponsor and its directors – namely, that the defendants breached their fiduciary duties by neglecting to disclose vital information in connection with the merger of Churchill Capital Corp. III (the SPAC) and Multiplan Inc. – to proceed. According to the court, Delaware’s entire fairness standard of review applies to a de-SPAC transaction challenged on the basis of misleading statements or omissions in the SPAC’s proxy statement.

Reflecting on the potential impacts of the court’s decision, Mayer Brown LLP partners John Ablan, Philip Brandes, and Brian Massengill stated in a note for Harvard Law School’s Forum on Corporate Governance that “although the court’s opinion is only a denial of a motion to dismiss and not a final ruling on the merits, it is an important development for SPACs and SPAC sponsors, directors and officers,” nonetheless. Among other things, “the court’s conclusions signal potential increased litigation risk for SPAC directors in connection with business combination transactions. “A very common feature of SPACs,” they state that “the differing incentives for Class A versus Class B stockholders may present an inherent conflict of interest requiring the application of the ‘entire fairness’ standard to a de-SPAC business combination transaction.” 

As for whether such headwinds in the space will deter future transactions, the recent trio of fashion deals, including the impending Lanvin SPAC, seems to suggest that more may still be to come even if the numbers are generally falling this year. “Only 24 SPAC mergers worth $28.3 billion have been announced so far this year, versus the 93 deals worth $233 billion in the first quarter of 2021,” per Reuters.

In light of “the scope of the MultiPlan ruling, and the novel application of traditional fiduciary duty principles in the SPAC contexts,” boards of directors that may be considering SPAC transactions may be proceeding with caution. According to Berchem and Precel, boards would be well served to “follow additional developments in the case, identify real and perceived conflicts in the oversight of any SPAC related transaction, give careful consideration to disclosures and risk factors, and consider obtaining a fairness opinion from a financial advisor if there are conflicts of interest among a SPAC’s directors.”

In terms of Lanvin Group’s plans in the wake of its merger with the SPAC, it is looking to super-charge the growth of its “uniquely positioned” brands in order to capture a greater share of the global luxury goods market, which it says is expected to reach $430 billion by 2025. With a “strong foundation” in Europe, and “nearly half of [its] revenue currently derived from EMEA,” the Group is looking to place “a strategic emphasis on realizing the brands’ untapped potential in both Asia and North America, where its brands are at an inflection point to achieve rapid and significant future growth.” Greater China accounted for just 14 percent of the Group’s global revenues in 2021, while the North American market contributed 33 percent, with more than half of that coming exclusively from St. John. 

Against this background, and given its “unparalleled access and track record in backing international consumer brands and powering their growth” in the fast-growing Asian market, and given that its brands “are also beginning to unalock the huge growth potential of the North American market by opening new retail stores, expanding e-commerce channels, and launching dedicated marketing and brand collaborations,” Lanvin Group claims that it is “well-positioned to capture the enormous growth potential driven by flourishing demand for luxury goods globally.”