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Yoox agrees to buy Richemont's Net-a-Porter

Mar 31 2015 19:21

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Last traded 106
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Cumulative volume 3503287
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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Paris - Italian online fashion retailer Yoox has agreed to buy Net-a-Porter, its upmarket rival, in an all-share deal that creates an industry leader in the booming online luxury market, with combined sales of €1.3bn.

Net-a-Porter's (NAP) owner Richemont [JSE:CFR] will receive 50% of the combined Yoox Net-a-Porter Group but its voting rights will be capped at 25%. Yoox management will effectively be in charge of the combined business and Richemont will take a back seat.

"Today, we open the doors to the world's biggest luxury fashion store," said NAP founder Natalie Massenet, who will oversee editorial content of the group as executive chairperson.

Yoox boss, founder and minority shareholder Federico Marchetti will become chief executive and shape strategy. "Between us, we have changed the fashion industry somehow and we will continue to change it," he told reporters in a conference call on Tuesday.

Under the terms of the deal, NAP will be absorbed into Yoox and the combined entity will remain incorporated and listed in Italy.

Still small

The online luxury goods industry is still in its infancy, making up only around 5% of total luxury sales because many brands put off Internet expansion, worrying it would not offer customers the same high-end experience as their stores.

But many executives now believe the Internet has redrawn battle lines between luxury brands and will be vital in driving future sales, particularly among the so-called Millennials, web-savvy customers born between 1980 and 2000.

Online luxury is not yet very profitable: both Yoox's and NAP's operating margin is less than 5% compared with more than 25% for most big luxury brands. But the pair hope their bigger size will help to cut warehouse, logistical, back-office, advertising and distribution costs.

Yoox operates the online sales of fashion brands such as Ermenegildo Zegna and Kering's Bottega Veneta and Saint Laurent. It also sells items at a discount.

Analysts said the deal could help to boost Yoox's chances of retaining luxury brands that might otherwise have wanted to take their online operations in-house once they gained experience.

"I'm positive on the outlook for the online luxury market. I believe it's a structural change that will gain traction as younger generations of more 'digitally minded' managers get to the top," said Gian Luca Pacini at Intesa Sanpaolo in Milan.

NAP specialises in current season and off-the-runway items, and advises customers on what to wear them with. It also publishes the "shoppable" fashion magazine Porter online and in print with a circulation of 152 500.

NAP had adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of €58.3m on revenue of 753.8 million in 2014, according to slides presenting the deal, while Yoox made EBITDA of €50.1m on sales of 524.3 million. NAP has an average order value of €481 while Yoox's is €202.

Marchetti said the two companies were complimentary also from a geographical standpoint as NAP had a greater presence in Britain, the Middle East and Australia while Yoox was stronger in Japan and China.

The United States would remain the two companies' No.1 market, followed by Britain, Italy and the rest of Europe.

Marchetti said NAP would have the same valuation as Yoox once the deal was completed in September. Analysts valued NAP at around €1.5bn, above Yoox which stood at €1.32bn on Friday before news of a possible deal came out.

Yoox shares - which had risen nearly 10% on Monday after Yoox and Richemont confirmed Reuters reports they were in talks - closed up 11.1% at €25.75 on Tuesday, valuing the company at €1.6bn. Richemont shares closed down 2.1%.

The combined business will generate annual synergies of around €60m by the third full year, the two companies said.

If Yoox shareholders approve the deal in June, the new group will launch a rights issue of around €200m in the autumn to fund growth, with Richemont expected to fund around half the sum, a spokesperson for the Swiss group said.

Marchetti said strategic investors keen to participate in the capital increase could include luxury brands but gave no further details.

Richemont, which makes the bulk of its profit from its Cartier watch and jewellery brand, has agreed to a three-year lock-up for half its stake, or 25%, which analysts expect the Swiss group to sell eventually. It will appoint two of the 12-member board.

Marchetti said Richemont was handing over NAP to Yoox debt-free, implying that it would take on its own books NAP's debt of €30m.



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