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South Korean ecommerce group Coupang has agreed to acquire Farfetch, providing a lifeline for the foundering luxury-focused online retailer that had been rushing to avoid insolvency.
Investment group Greenoaks Capital Partners will also take part in the rescue deal that gives Farfetch a $500mn bridge loan to continue offering its services, according to a statement.
“Farfetch will rededicate itself to providing the most elevated experience for the world’s most exclusive brands, while pursuing steady and thoughtful growth as a private company,” said Bom Kim, chief executive of Coupang.
Coupang, which operates in food delivery, video streaming and online shopping in Japan, South Korea and elsewhere, negotiated the deal with a group of debtholders who held most of a term loan that was owed by Farfetch, according to a disclosure filed with the Securities and Exchange Commission.
The London-headquartered business is expected to be acquired through a pre-pack administration process. Greenoaks is a San Francisco-based group that was an early investor in Coupang.
The deal is a blow to Farfetch’s ambitious founder José Neves, who had pitched the group to investors as a growth story that married tech know-how with luxury knowledge to attract fans of brands such as Gucci and Burberry.
Farfetch’s market value peaked at about $24bn in early 2021 as online shopping boomed during the coronavirus pandemic but its shares have plunged since as concerns mounted over its debt and outlook. They have lost more than 97 per cent of their value since Farfetch went public in New York in 2018.
Farfetch struggled to become profitable and to secure products because top luxury brands such as Hermès and Chanel refuse to sell through third parties, preferring to maintain control and avoid the discounting that online retailers rely on to bring in clients.
Additionally, the company faced $1.6bn in debt repayments between 2027 and 2030, with investors worried it did not have the funds to cover its costs in the shorter term. Credit rating agency Moody’s cut the company’s rating this month to Caa2, deep in junk territory, citing deepening worries about its financial situation.
Neves had in recent weeks explored the option of taking it private. He owned 15 per cent of Farfetch but controlled 77 per cent of the voting rights thanks to a dual-class share structure. Other large investors besides Richemont included Alibaba, the Chinese ecommerce group, and Artemis, the family holding company of the billionaire Pinault family.
Neves will remain at the company, although his exact role is still being negotiated with the new owners, according to a person with knowledge of the discussions.
“This was predictable. From day one, Farfetch’s business model didn’t make sense in luxury. They got an additional lease of life from Covid; otherwise this could have happened two years earlier,” said Flavio Cereda, a luxury expert and fund manager at GAM.
“Clearly, Coupang was the only option. Even in this market and with luxury exposure attached, it looks like private equity buyers walked away . . . The business will need to evolve in another direction. If it didn’t work when money was getting poured into it even with the unbelievable cash burn, it certainly won’t now,” Cereda added.
The Coupang rescue also puts an end to Farfetch’s earlier plan to buy lossmaking luxury ecommerce site Yoox Net-a-Porter from Swiss group Richemont, a deal that was signed in 2020 but had yet to close.
Richemont, which owns jewellers Cartier and Van Cleef & Arpels, said it would seek other options for YNAP without providing specifics. Farfetch had been supposed to provide its technology platform to Richemont, but the migration had not yet occurred, said the Swiss group.
Richemont added that it did not expect to recover €300mn in convertible debt that Farfetch had earlier issued to it.
Additional reporting by Leila Abboud
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