LONDON — The latest e-commerce power couple could make its debut as early as today as Compagnie Financière Richemont is said to be near a deal to merge its Net-a-porter subsidiary with Yoox Group, creating a global market leader for full-price and discount fashion.
Capping 18 months of speculation — WWD first reported Yoox was in talks to buy Net-a-porter Group in October 2013 — both Richemont and the Italian company confirmed to the stock market Monday that discussions are underway regarding a “potential business combination” between Yoox and Net.
Until Monday, Richemont repeatedly denied it was talking to potential buyers for Net-a-porter, although sources said the cash-rich parent of brands including Cartier, Van Cleef & Arpels and Dunhill was quietly shopping it around.
Both Richemont and Yoox declined further comment, although industry sources say the deal will likely take the form of a merger, with Richemont holding the majority — or at least a substantial stake — in the newly created company. Net-a-porter’s founder, executive chairman and interim chief executive officer Natalie Massenet is expected to remain, and take up a management position alongside Yoox founder and ceo Federico Marchetti.
The goal would be to scale up Net-a-porter’s high-end fashion offer, building on Yoox’s retail e-commerce expertise, while allowing Yoox to grow the off-price business on which it was founded and further leverage its monobrand know-how.
Indeed, both Yoox and Net-a-porter need long-term growth plans to flourish in an increasingly cutthroat fashion e-tail market that has seen the rise of competitors such as Moda Operandi in the U.S. and Germany’s Stylebop.com and brick-and-click marriages such as Neiman Marcus’ purchase of Mytheresa.com of Germany last year. Not to mention the continuing global onslaught of mega players like Amazon and Alibaba.
“Net is one of the most known and renowned luxury e-tailers experiencing fast growth, but the issue now is building scale, as Net remains smaller than its department store competitors,” Mario Ortelli, senior analyst at Bernstein, told WWD. “Richemont’s aim is to pair this jewel with a big retailer or e-tailer to help it build critical mass. Richemont isn’t interested in disposing of Net: It doesn’t need the cash, it doesn’t need to sell the company, but it does want to find a long-term growth strategy for what is a very good business.”
Ortelli added that by maintaining a stake in any eventual new company, Richemont would benefit from a fast-growing business, new synergies, and have access to know-how about online retailing for its own luxury goods businesses, which also include Montblanc, IWC, Chloé, and Azzedine Alaïa.
In a report for Citigroup, Thomas Chauvet said a potential combination between Yoox and Net-a-porter could create “the market leader” in the luxury online industry…No other players match their breadth of sourcing, client base, luxury expertise and relationships, in our view.”
As reported, Net-a-porter’s valuation could range between 1.2 billion euros to 1.5 billion euros, or $1.31 billion to $1.64 billion, and even bounce as high as 2 billion euros, or $2.19 billion, according to analysts.
Yoox has a market capitalization of 1.44 billion euros, or $1.57 billion at current exchange. Shares in the company closed up nearly 10 percent at 23.18 euros, or $25.24, on Monday, following speculation about a possible deal. Richemont shares were broadly flat, advancing 0.1 percent to 80 Swiss francs, or $83.11, at the close of trading.
Last week, WWD reported that Amazon was courting Net-a-porter, and an industry source confirmed on Monday the Internet behemoth was in the frame until recently. Separately, another source said the profitable Yoox had changed tack since 2013: Instead of looking at companies to buy, it started seeking — and having trouble finding — a buyer for itself.
Ortelli said given the choice between a Yoox and an Amazon, it was clear who would win. “I find it difficult to believe that Amazon would want to merge — and form a new company — with Net-a-porter,” he said.
Many analysts believe that it’s Net-a-porter that will reap the most benefits from any newly formed company.
As reported, ownership changes were already afoot at Net-a-porter, as Richemont has an option to buy the remaining minority shares in the Internet company held by Massenet and top management that comes due this week.
Luca Solca, managing director at Exane BNP Paribas, wrote in a flash report Monday, that of the two parties involved, “Yoox seems to have the most directly challenged business model in the short term — and is probably the most eager to merge.” Solca added he expects the merger to be more advantageous to Net-a-porter and to Richemont in terms of valuation.
“In reality, we think the synergies between [Net-a-porter and Yoox] are a very little thing, considering that one is an off-price virtual retailer, and the other is a full-price virtual retailer. We would therefore take a relatively negative view of the merger: More a sign of lack of options and/or financial engineering, rather than real industrial opportunity.”
Solca called the potential merger “a second best way out for Richemont, as opposed to, for example, selling to Amazon.”
The analyst also believes one of Yoox’s major revenue streams could easily dry up. Since 2006 Yoox has been building and operating mono-brand online stores for businesses including Giorgio Armani, Valentino, Lanvin, Diesel, Moncler, Alexander Wang and Pringle of Scotland. The company touts them as “Powered by Yoox.”
“The ‘powered by’ becomes a much more difficult proposition to sell the moment luxury brands decide digital is strategic,” wrote Solca on Monday. “Market evidence suggests many luxury and fashion brands have opted for a ‘make’ solution rather than ‘buy’ through Yoox.”
A Milan-based luxury goods analyst who spoke on condition of anonymity said Yoox could also run into trouble with a big shareholder like Richemont.
“Yoox would have to reassure other major luxury brand clients [for which it builds and operates sites] that it would guarantee continuity despite the fact that a major competitor of theirs, Richemont, would become the leading stakeholder.”
Indeed, Yoox has a joint venture with the Kering Group — a Richemont rival — managing the monobrand online stores of many of its labels, including Gucci.
It remains unclear how big the Richemont stake will eventually be in any new company, and whether the future will attract more investors, allowing Richemont, with its expertise in hard luxury, to bow out of the online business with grace.
“If such a deal were to go ahead, we see Richemont’s likely dominance in the combined entity as the only potential negative,” said Chauvet in his report for Citi. “However, this could be overcome via a subsequent partial placement in the market, or a disposal to a corporate buyer.”
“We could see potential interest from a variety of players including media groups with leadership in the luxury magazine segment, department stores, sovereign funds or big Internet firms,” he added.
