Farfetch investors contest Coupang’s takeover of the UK site

The rescue of Farfetch through the acquisition of Korean e-commerce giant Coupang, announced last December, has hit its first hurdles. The deal, which is due to be finalised in 2024, is being challenged by a group of investors in the British luxury retailer. The group is keen to explore the options for this proposed takeover without further delay, as it risks significantly devaluing the online site.

These institutional investors, who hold more than 50% of Farfetch’s convertible bonds maturing in 2027, have formed a company, The 2027 Ad Hoc Group, which has appointed Pallas Partners as legal advisor and the investment bank Ducera Partners as financial advisor. The group’s objective is “to urgently assess options to protect its interests from the value destruction it believes would occur if the sale to Coupang were to go ahead”, it said in a press release.
 
Under the terms of the agreement between the two parties, signed on 18 December 2023, Coupang gave Farfetch “access to $500 million (€457 million) of capital to continue to provide brands and exclusive boutiques with cutting-edge, bespoke technology and give leading designers access to consumers around the world”. These transactions are subject to a period of exclusivity until 30 April, after which the sale will be finalised.

The investors’ concern is that, with the sale of Farfetch to Coupang, “the interest on their 2027 bonds will be reduced to zero, as well as other debt issued by Farfetch”, they point out in the press release.
 
The investor group, which opposes the deal, has “serious reservations about the manner in which Farfetch went from being the market leader at the end of the 2023 financial year with cash in excess of $800 million in August 2023, to a fire sale four months later.” “At the time the deal was announced, the consensus of analysts (including its in-house broker JPMorgan) estimated Farfetch’s enterprise value at over $3 billion,” notes 2027 Ad Hoc Group, expressing “deep concern at the rapid and unexplained deterioration in Farfetch’s financial position between August and December 2023”.
 
In addition to these worrying developments, the investors believe that the terms of the agreement preclude the possibility of another offer. “This process sets an incredibly dangerous precedent. Allowing this transaction to proceed does not maximise the value of the company’s assets at a time when at least three other credible parties have been publicly declared interested in all or part of the business,” said a spokesperson for 2027 Ad Hoc Group, which is “urgently considering the appropriate next steps”.