Dive Brief:
- An ad hoc group of Farfetch noteholders is challenging Coupang’s deal to buy the luxury e-commerce platform, according to a Friday press release.
- The 2027 Ad Hoc Group says it represents “over 50% of Farfetch’s 2027 convertible notes,” which means the group’s bond holders own debt in the business, and if the sale to Coupang goes through, bond holders say they will not be able to recover their funds, per the release. A source familiar with the situation said the shareholders are frustrated because it appears Farfetch rushed into the Coupang deal without trying to find another way to generate liquidity that could help the company through a difficult period.
- Formal litigation has not been filed, but the group has retained legal firm Pallas Partners as counsel and hired Ducera Partners as financial advisors “to evaluate its options,” per the release.
Dive Insight:
This challenge is the latest in a series of stumbles for Farfetch, which began to show signs of struggle last fall.
“The shareholders were all rather taken by surprise by the kind of very, very rapid decline in Farfetch,” said a source familiar with the situation in an interview with Fashion Dive.
When Korea-based e-commerce company Coupang announced its intention to purchase Farfetch in December 2023, some industry analysts saw it as a lifeline for the troubled company. Farfetch canceled its Q3 earnings call in November, which stirred up speculation that the company intended to go private. At the time of the Coupang acquisition announcement, investors said they would not “recover any of their outstanding investments.” Additionally, Farfetch said it expected to be “delisted from the NYSE and to be liquidated,” and that every board member apart from José Neves, Farfetch’s founder, chairman and CEO, was resigning.
The ad hoc group of noteholders now challenging Coupang’s acquisition represents approximately $400 million in owned debt, said the source, who added that the group is looking to explore options that would allow them to recover their money, which will otherwise be forfeited in the deal.
The group said it’s also concerned the proposed Coupang acquisition is “undervalued relative to broker valuations as recent as August 2023” and that a $1 billion “poison pill risks deterring alternative bidders,” per the release. What that means, in essence, is that Farfetch would have to pay $1 billion to cancel this proposed deal.
While the current challenge may not be enough to end to the Coupang deal, it could pressure Farfetch and Coupang to make amends with the noteholders before the acquisition continues.
A Farfetch spokesperson did not immediately respond to Fashion Dive’s request for comment.
The challenge comes alongside a class action lawsuit filed by Farfetch shareholders last year, alleging that the company failed to disclose a “significant slowdown” of growth in the U.S. and China. That complaint, filed prior to the company’s delisting and Coupang’s proposed acquisition, is currently pending and was transferred from U.S. District Court District of Maryland to the U.S. District Court Southern District of New York on. Jan. 22.
Luxury e-commerce as a whole may see far-reaching effects of this situation, analysts told Fashion Dive at the time the Coupang deal was first announced. Prior to November 2023, Compagnie Financière Richemont had entered into a now-canceled deal that would have allowed Farfetch to acquire a 47.5% stake in Richemont’s digital Yoox Net-a-Porter platform. In its Q3 earnings call, Richemont said it would continue to search for a YNAP buyer.
Correction: The teaser was updated to correctly reflect the bond holders' investment.
