By and  on January 22, 2018

MILAN — The race is on.Compagnie Financière Richemont SA’ s bid to take full control of the Yoox Net-a-porter Group proves just how hot the pursuit of fashion-tech retailers has become, with investors competing to lock down the top players, and ramp up the retailers’ offers — and international reach — especially in the fast-growing Asian market.Richemont’s offer Monday for the remaining 51 percent of YNAP it doesn’t already own comes months after Apax Partners bought a majority stake in Matchesfashion.com; JD.com’s $397 million investment in Farfetch, and Adrian Cheng’s purchase of a “significant” slice of Moda Operandi together with Apax Digital.Richemont has launched a voluntary tender offer for all ordinary shares of YNAP, and plans to pay up to 2.77 billion euros. Its bid values YNAP at about 5.3 billion euros, Federico Marchetti, chief executive officer of YNAP, tweeted on Monday.Richemont chairman Johann Rupert said his decision to launch a full bid, at 38 euros per share, which is a 25.6 percent premium compared with Friday's closing price, stemmed from wanting to strengthen Richemont’s “presence and focus" on the digital channel which, like other luxury groups, it had been slow to embrace although it had been a controlling shareholder of Net-a-porter since 2010.Richemont also said it’s committed to YNAP for the long term, and plans to grow the business in existing and new geographies, increase product availability and range, and develop the customer service offer.Following the announcement, Richemont’s share price remained broadly flat at 90.16 Swiss francs, while YNAP’s rocketed 24.3 percent to 37.60 francs, nosing the offer price. Shares in the e-tailer closed at 37.56 euros, up 24.12 percent, while Richemont shares closed down 1.4 percent at 88.70 Swiss francs.Marchetti, who founded Yoox in 2000 and spearheaded the merger with Net-a-porter in 2015, endorsed the offer and said the money will help to accelerate growth further. He also suggested that he plans to stay on.“The prospect of no longer owning 4 percent of the share capital does not change my entrepreneurial commitment to YNAP,” he said. “Dreaming and innovating to the benefit of our customers has always been my motivation; it will remain so in the years to come.”Kering, which inked a venture with Yoox in August 2012 to launch six online stores for brands ranging from Alexander McQueen to Bottega Veneta, had no comment on Monday. Market sources believe that the deal, for the time being, does not change the status of the venture.While Richemont is keen to secure full ownership of YNAP, the market could well have other plans for the retailer. One industry source stressed that Richemont, which holds a 49 percent stake in YNAP, might well be outbid by a rival, and there are quite a few around.As reported last summer, YNAP saw its shares jump 9.24 percent following a rumor that Alibaba was looking to take a stake in the company — or buy it outright. At the time, Marchetti declined to comment, while Alibaba later denied it was interested.Then, there are the private equity groups and industry investors who were left in the cold after Apax Partners snatched the Matchesfashion.com stake in August at a valuation of $1 billion. They could well step forward with better offers.In a note following Richemont’s announcement, Luca Solca of Exane BNP Paribas described Rupert and Richemont as “great traders of assets. And it is clear that Chinese digital retail giants Alibaba and Tencent are very eager to expand their reach beyond their national borders.” Solca wondered whether Richemont’s proposed purchase of YNAP could be “the preamble of more M&A” and the first step in a ‘big bang’ divestiture to one of those retail digital giants.Solca also defined Richemont’s bid as “puzzling” for the group’s shareholders. “It is obvious that the idea of creating a “cooperative industry leader,” which was floated when Yoox and Net-a-porter merged, with the goal to attract the likes of LVMH and Kering into the capital, “has failed, there were no takers, apparently,” he said. One individual who did respond to Rupert's call to invest in YNAP was Dubai entrepreneur Mohamed Alabbar, who took a 4 percent stake in 2016.Solca isn’t the only one mulling other possible scenarios for YNAP.“We think there is a possibility of a counter-bid to Richemont's offer,” wrote Sherri Malek of RBC Capital Markets, adding there will be more M&A activity in the sector in the long-term.She called YNAP “a high-quality, fast-growing asset with sustainable competitive advantages,” and said it is “uniquely positioned as the distant market leader in Internet luxury, addressing a sizable market. Yet the stock trades at a significant discount to its Internet retail peers.”Malek said RBC would not rule out the possibility of Amazon seeking to purchase an asset within the fashion industry in order to build its credibility with brands and consumers, “which we view as currently lacking.” She also remarked on how the ASOS and Zalando businesses were complementary, for example, and envisioned a merger of those companies.Mario Ortelli of Bernstein argued instead that YNAP's offer could be the beginning of a new acquisitions spree by Richemont.“Given the lack of interesting acquisition targets up for sale in their core business of hard luxury, Richemont has decided to put at work its big cash pile, investing in distribution channels. Given that Richemont acquired a 7.5 percent stake in the travel retail operator Dufry in 2017, we could expect further investments in luxury retail operators by Richemont.”One Milan-based luxury goods analyst who spoke on condition of anonymity, said the takeover was “unexpected,” and added that the price premium reflects sector multiples. Since Richemont already is the main shareholder, he did not foresee a counterbid. “I did not really believe in the rumors about Alibaba’s interest, and I was skeptical about YNAP’s targets in light of the growing competition,” he said.It should come as no surprise that Richemont is taking a fresh look at the potential of luxury in the digital universe. Richemont has been drip-feeding its watch and jewelry brands onto the YNAP platforms to great success, via pop-ups or exclusives.As reported, Net-a-porter launched Cartier’s new Panthère watch collection exclusively, with the first model selling out within two minutes via WhatsApp. Net has said it is planning to grow its hard luxury sales by nearly 150 percent this year and by 2020 the department is set to grow by more than 300 percent.Last summer, Rupert also drafted a lineup of young, digitally savvy executives to Richemont’s board.They include his 29-year-old son Anton Rupert; the former Google executive Nikesh Arora; the triple-degree Harvard grad and London School of Economics professor Dr. Keyu Jin; and former group managing director at UBS Dr. Vesna Nevistic.Rupert said he sees his son Anton as “the new Google translate to tell us where the world is going,” and hopes that he’ll bring “further insight into changing consumer behavior in our target markets, in particular in the areas of digital marketing and web-based commerce.”A source familiar with Richemont said the purchase of 100 percent of YNAP should immediately pump up the luxury giant’s online power: “They have to speed up their Internet sales, which are still low, and there are armies of IT people at YNAP there to help. They are not only buying a company, they’re buying people,” with know-how, the source said.Richemont's online growth has, in part, been hampered by its hard luxury offer. Jorge Martin, head of personal accessories and eyewear at market research provider Euromonitor International, said “the much higher price tag of products such as fine jewelry and high watches still act as a deterrent to faster digital growth.” Sales remain heavily concentrated among jewelry and watch specialist retailers, accounting for 40 percent of total sales in 2017, generating global value sales of $211 billion, noted Martin. Department stores rank as the second most important channel globally, with sales of $122 billion.Martin said that Net-a-porter should help the Richemont brands unlock growth online. “Its presence is uniformed and customer experience seamless across all platforms including desktop, mobile and tablet. The website’s interface is extremely user-friendly and easily shoppable; elements which are notoriously lacking in luxury online retailing.”The public tender offer will be made through the special-purpose vehicle RLG Italia Holding S.p.A. a company that is in the process of being incorporated. It will be owned indirectly by Richemont.If the deal goes through, the intention is to de-list YNAP from the Milan Stock Exchange. YNAP would continue to be run as a separate business in the Richemont stable and its headquarters will remain in Italy.Marchetti on Monday said that “Richemont aims to provide additional resources that further strengthen and accelerate YNAP’s long-term leadership in online luxury. This means investing even more in product, technology, logistics, people and marketing. YNAP will continue to be managed as a separate company, providing a neutral and highly attractive platform for all luxury brands.” He took the opportunity to credit the group’s “exceptional team.”The entrepreneur said the offer marked an “historic event” for the luxury e-tailer. He said it had always been his “dream to create something much bigger. This became possible through the combination of Yoox and Net-a-porter in 2015, a vision shared with Richemont. The hard work of our combined teams created the world leader in online luxury, reaching over 2 billion euros in revenues in just a couple of years. I am very grateful to everyone who made it all possible. Nearly 20 years after inventing Yoox, YNAP’s magic excites me even more.”

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