Image: Farfetch

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

After months of silence following a reported breakdown in negotiations between Richemont chairman Johann Rupert and Farfetch founder Jose Neves, the deal is said to be back on the table, with industry outlet Miss Tweed reporting that Richemont is “exploring several options” in a bid to off-load YNAP to Farfetch. Assuming that Richemont does not opt to stay its course and inject cash to boost the YNAP business, which is a potential, especially given Mr. Rupert’s statement last year that the partnership with Alibaba and Farfetch does not signal a lack of confidence in YNAP, no shortage of signs have pointed to the potential for a spinoff of YNAP to Farfetch.

An Impending Deal for Richemont

A change of control when it comes to YNAP would make sense for a number of reasons, including that Richemont – which is best known for its hard luxury offerings, such as those from Cartier, IWC, Vacheron Constantin, and Van Cleef & Arpels, among other brands – is not particularly well-versed in the business of technology. This is something that analysts were quick to point out when the 33-year-old Swiss conglomerate acquired the entirety of YNAP in 2018. One need not look further than the turnover of three Chief Technology Officers in as many years for a seemingly glaring indication of the group’s lack of a concrete tech strategy, which could very well serve as an impetus behind a merger with the more technologically-competent Farfetch. 

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

Late last year, Mr. Rupert shot down predictions that the Richemont-Alibaba-Farfetch deal – one that he confirmed was not initiated by Richemont – was a preliminary step in a takeover of Farfetch by Richemont. He did not, however, deny that it was the first phase of a potential spin off of control of YNAP to Farfetch. Bernstein analyst Luca Solca posed the possibility in a “quick take” note at the time, questioning whether the alliance is “a preamble to [Richemont] spinning off YNAP and merging it with Farfetch – or selling it to Alibaba?” 

A Potential Clue?

There is a possible clue that an acquisition of YNAP is, in fact, in the cards for Farfetch: former Farfetch co-chair Natalie Massenet’s departure from the company in August 2020. While Mr. Rupert said during a November 2020 call that Richemont does not have “mortal enemies in the sector,” it is hardly a secret that he and the Net-a-Porter founder have had a contentious relationship. As the Wall Street Journal reported in 2017, Ms. Massenet’s departure from Net-a-Porter in September 2015 – a month before the close of the merger with Yoox – was “abrupt” and “fraught.” 

The trouble seems to have started in 2015 when Richemont, which was Net-a-Porter’s majority shareholder, struck a deal to sell the company to Yoox for “a valuation far lower than [Ms. Massenet] expected: $1.4 billion rather than $2.3 billion” reportedly “without first seeking Ms. Massenet’s approval,” per BoF. There was also said to be strife between the parties due to the fact that Yoox founder Federico Marchetti was named CEO for the newly merged YNAP venture, and Ms. Massenet was given the title of executive chairman, as opposed to co-CEO. 

As a result of the price tag of the deal and the titling snafu, which could have been read as a demotion, Ms. Massenet and Mr. Rupert ended up on opposite ends of a protracted clash that played out in the media and in the form of a legal battle. The more than one-year-long legal fight ended in a settlement, complete with a pay day “well in excess of €100 million,” for the Net founder. Massenet subsequently made headlines when she joined Farfetch as co-chairman in 2017. 

With such a seemingly strained history in mind, it is not impossible to imagine that Mr. Rupert may be refusing to get in bed with another company with Ms. Massenet in a leadership role, and potentially, wagered her ouster as a condition of any major Richemont, Farfetch deal. (It is worth noting, of course, that Ms. Massenet was not the only member of the board to leave Farfetch this summer amid “record-breaking” quarterly growth for Farfetch; Jon Kamaluddin, Jon Jianwen Liao, Danny Rimer and Mike Risman also stepped down; she was, however, the highest ranking. Neves said Ms. Massenet’s leaving 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 underway, 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 company off the ground.” Like Ms. Massenet, Ms. Busquets – who also worked alongside Rupert on Net-a-Porter until she sold off the last of her Net-a-Porter shares in 2015 – had “complained bitterly” that Net-a-Porter “was being sold at far too low a price.”

She also took issue with the pairing of the two e-commerce companies, particularly as she had proposed “an indisputably better partner set up” for Net-a-Porter – by way of a consortium of investors – “than the Yoox transaction.” 

The “dispute” between Ms. Busquets and Mr. Rupert/Richemont endured for months after the Yoox, Net-a-Porter deal closed in October 2015. Reflecting on the deal in an interview early this year, Busquets stated that “the people who surrounded Johann Rupert didn’t understand e-commerce, fashion or women, and I know this because we were equal partners with the same rights for eight years.” At the same time, Busquets – whose website currently lists her stake in Farfetch as “present” – stated in connection with news of the Richemont-Alibaba-Farfetch alliance that she “sees it as a sign of how far Rupert and Richemont have come in their thinking about the digital frontier.” 

Standing in the Way?

Fast forward, and on the heels of an apparent touch-and-go period earlier this year between the Richemont and Farfetch camps in connection with a potential merger, and following a reported Richemont-initiated halt in negotiations that carried on for much of the summer, TFL’s sources say that the two sides have been working on a new deal since August. 

As for what might be standing in the way of the culmination of a deal between Richemont and Farfetch, which has been rumored for months, there could be a potential clash at play between the two strong personalities that are Mr. Rupert and Mr. Neves. The former – a shrewd businessman who took his father’s South African tobacco business and turned it into the second-largest luxury goods company in the world following only behind LVMH – has been hailed as the current “kingmaker” of the luxury goods space, per Bloomberg, as he holds the cards in “what could be the final luxury consolidation game.” Meanwhile, Mr. Neves – who has been credited with helping to bring about a “paradigm shift” in luxury shopping – is an aggressive brand builder in his own right, which could make for something of a conflict between the two dealmakers.

It is unclear as of now what – if anything – will come into fruition in terms of a more extensive tie-up between Richemont and Farfetch. It is also not immediately obvious what such a hypothetical deal would do for NYSE-traded Farfetch’s share price, which gained almost 500 percent in 2020 and has since fallen by almost 50 percent since its February high of $73.35. Even with such uncertainties in mind, it is ultimately worth noting that when it comes to enduring chatter in the fashion industry, there is often at least some truth behind the talk.