LONDON – Richemont has finalized a long-awaited deal aimed at digitizing the luxury business, selling a majority stake in its Yoox Net-A-Porter (YNAP) platform to Farfetch and Mohamed Alabbar.
Cartier’s parent said Wednesday that Richemont, Farfetch and Symphony Global, one of the investment vehicles of Mohamed Alabbar, had entered into “a landmark transaction” that will see Farfetch and Alabbar acquire a 47.5% stake, and 3.2% stake, respectively, in YNAP.
Farfetch will then acquire 100% of YNAP in three years’ time, subject to certain conditions.
As part of the complex partnership deal, Richemont will be taking a non-cash write down of around 2.7 billion euros, which Richemont’s chairman and founder Johann Rupert said was worth every cent.
“The benefits of this deal far outweigh the non-cash write-down,” he said during a conference call on Wednesday morning.
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After the sale of the initial 47.5% stake in YNAP – which is expected to be completed by the end of the 2023 fiscal year – Richemont is set to receive between 53 and 58.5 million Class A ordinary shares in Farfetch.
The shares are expected to represent between 10 and 11% of the fully diluted share capital of Farfetch, and 12 to 13% of the issued share capital.
Five years after this, Richemont will also receive a further $250 million, which is expected to be settled via an additional million Class A ordinary shares of Farfetch.
At that time, YNAP will “be free of financial debt, with a minimum of $290 million of cash on its balance sheet,” and get access under conditions to a $450 million committed credit line from Richemont.
Richemont shares were up 1.2% in mid-morning trading at 111.30 Swiss francs, rising 2.8% in mid-day to 113.10 Swiss francs.
The agreement also sees Richemont and YNAP adopting Farfetch Platform Solutions, which means the companies will be able to leverage Farfetch’s digital expertise.
“This represents a significant step in achieving Richemont’s vision of making YNAP a neutral industry-wide platform, and, through a put and call option mechanism, lays a path towards Farfetch potentially acquiring the remaining shares in YNAP, bringing together these highly complementary businesses. The partnership also marks a step change in Richemont maisons’ omnichannel distribution capabilities,” Richemont said Wednesday.
The luxury giant, owner of brands including Cartier, IWC and Van Cleef & Arpels, said the partnership will mean that Richemont and YNAP will leverage Farfetch’s technology platform to advance its Luxury New Retail program.
Furthermore, YNAP will adopt Farfetch Platform Solutions to facilitate its shift towards a hybrid retail-marketplace model.
Richemont will also use the Farfetch platform to advance the delivery of the omnichannel strategy of its maisons, which will also join the Farfetch marketplace, boosting, among other categories, Farfetch’s watches and jewelry offering.
Richemont said that the Farfetch platform is “well-positioned to deliver end-to-end capabilities for the luxury industry,” and it “envisions further collaboration on innovative technology solutions to be made available to luxury brands and retailers to meet the increasing omnichannel demands of the luxury customer.”
The planned merger of YNAP with Farfetch was announced by Rupert late last year, and fulfills Rupert’s ambition of creating a neutral platform for luxury digital sales while allowing Richemont to move ahead without the YNAP business, which had been a drag on Richemont’s bottom line.
Rupert said the announcement was a “significant step towards the realization 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. 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.”
José Neves, Farfetch founder, chairman and CEO, said that his company was “excited to acquire 47.5% of YNAP and partner with Richemont in YNAP’s transformation into a hybrid business model which we believe will drive strong growth and profitability for YNAP. This investment and work we will do with Farfetch Platform Solutions for YNAP will pave the way to a potential acquisition by Farfetch, which would create a complementary portfolio of iconic luxury destinations, appealing to different demographics, price points and regions.”
As part of this deal, most of Richemont’s portfolio of houses will use Farfetch Platform Solutions to create an omnichannel client experience between their e-commerce operations and physical retail network by the end of the first stage of the transaction. These will include A. Lange & Söhne, Alaïa, Baume & Mercier, Buccellati, Cartier, Chloé, Delvaux, dunhill, IWC Schaffhausen, Jaeger-LeCoultre, Montblanc, Panerai, Piaget, Purdey, Roger Dubuis, Serapian, Vacheron Constantin and Van Cleef & Arpels.
Fashion houses AZ Factory and Chloé, jewelers Cartier and Van Cleef & Arpels as well as luxury watchmakers Vacheron Constantin and Jaeger-LeCoultre are expected to also launch e-concessions on Farfetch’s marketplace.
During the call on Wednesday morning, Rupert and Neves said the deal would add digital firepower to the Richemont brands, and to other luxury brands that wanted to join the e-commerce platform.
“Our technology will be a game-changer for Richemont’s brands, and allow them to operate in a hybrid marketplace that is now open to the entire industry,” said Neves, adding that the deal has doubled the gross merchandise value of Farfetch overnight.
Rupert said that he was excited about the deal, and about Richemont’s future with YNAP now hitched to Farfetch.
“It was never Richemont’s dream or intention to own an online business. I have been pleading for seven years to have a neutral digital sales platform” that any brand could join, he said.
Rupert said that the Richemont and Farfetch management teams are familiar with each other and work well together, and that Farfetch was the best partner possible for YNAP, and would offer first-class tech support and cooperation.
He added that the merger will also allow “Richemont to do what it does best, and build brand equity,” at its luxury maisons, without having to worry about running a digital business.
Rupert also said that a great impetus behind the deal were Richemont’s own maisons, “which have been eager to re-platform.” The deal with Farfetch, he said, would be “transformative for all of luxury and not for a select few. It will transform big and small companies throughout Europe.”
Asked about the outlook for luxury, Rupert said that he expects China to “unlock” after next winter, and urged analysts and press not to underestimate the war in Ukraine. He said he’s concerned about rising energy prices and wheat prices as well.
“Wheat prices lead to revolutions and mass migration,” he said. Rupert added that, nonetheless, he was confident about the future of the luxury industry.
Neves added that he was confident about luxury’s future, and cannot wait to get started on the YNAP project.
He said that Farfetch plans to replatform all of the brands to a hybrid business model “as soon as possible,” describing the luxury industry as “resilient” and ready to evolve.
Following the announcement, the move was described as “very good news for both companies” by Luca Solca, senior research analyst of global luxury goods at Bernstein. He pointed out this removed “a continuing source of losses and a depressing factor on its financial performance and multiple” for Richemont while Farfetch nets the second place in global multi-brand digital distribution as well as the $450 million credit line for 10 years.
The YNAP sale is expected to be a talking point at the upcoming annual general meeting on Sept. 7, where proposals by activist investor Bluebell to install hard luxury veteran Francesco Trapani on the board and changes its board makeup will be put to the vote.
This story was reported by WWD and originally appeared on WWD.com.
