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Bond Holders Challenge Coupang’s Rescue of Troubled Farfetch

LONDON — A group of institutional investors is contesting the proposed purchase of Farfetch by Coupang, and plans to fight for the money it believes is owed to them by the fashion e-commerce platform, which filed for administration late last year.

Bond holders in possession of more than half of Farfetch’s 3.75 percent convertible senior notes, due in 2027, said in a statement on Friday they were “mobilizing to challenge” Coupang’s proposed purchase of Farfetch.

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They also argue that Coupang has undervalued Farfetch, and that Farfetch was not transparent with regard to its financial difficulties in the months leading up to the fire sale on Dec. 18.

As reported, Farfetch was sold in a pre-pack administration deal that saw Coupang inject $500 million into the troubled company and take 100 percent ownership. As a result, all shareholders, including founder José Neves, saw their investments wiped out.

A pre-pack administration in the U.K. means that a rescuer for a troubled business is found, and a sale is negotiated before the administrators step in.

In their statement, the bond holders said “allowing this transaction to complete fails to maximize the value of the assets of the company at a time when at least three other credible parties were publicly reported to be interested in all, or parts, of the business.”

In December, before the sale, WWD was the first to report that Carmen Busquets, known for her savvy, early-stage investments in tech-driven brands, was looking to raise between $500 million and $1 billion to rescue Farfetch. She proposed a five-year plan with the aim of driving fast growth and profitability.

“Fundamentally, I believe in the fashion and technology marketplace sector and I believe Farfetch remains the leading company in the industry. It has driven fundamental change to the distribution of fashion globally over the last 15 years,” Busquets told WWD in a story published on Dec. 13.

The bond holders, who have combined assets under management of more than $1 trillion, said they have appointed Pallas Partners as legal counsel and Ducera Partners as financial advisers to pursue their case.

The group said it was working “to urgently evaluate options to protect its interests in the face of the value destruction that it believes will be effected should the Coupang sale go ahead.”

As part of its action, the group has declared a default of the 2027 Notes, which means they are “immediately due and payable in full.” The group did not specify the amount of money it is seeking.

The group said the default arose from the suspension of trading and delisting of Farfetch from the New York Stock Exchange, which was imposed by the NYSE as a result of the proposed sale to Coupang.

In addition, the bond holders group said it has “serious concerns” about how Farfetch went from guiding the market to fiscal full-year liquidity of more than $800 million in August 2023, to a holding a distressed sale four months later.

It also noted that [in August 2023], analyst consensus estimated Farfetch’s enterprise value to be in excess of $3 billion.

“As such, the group is seriously concerned by the rapid and unexplained deterioration in the financial position of Farfetch between August and December 2023,” the statement said.

The bond holders added they are concerned about what they describe as a poison pill measure put in place by Coupang and its investment partner, the San Francisco-based firm Greenoaks Capital.

“If Farfetch pursues an alternative transaction, any competing bidder would, in effect, have to pay a $1 billion fee [which] risks making it unviable for any other bidders to present an alternative, value-maximizing offer,” the group said.

It added that “better value for the assets of Fartetch could be achieved through alternative routes than the proposed sale, including a break-up sale of the assets to interested bidders.”

A spokesperson for Coupang declined to comment. Farfetch did not immediately return a request for comment.

As reported, as a result of the sale to Coupang, Compagnie Financière Richemont canceled its deal to sell a majority stake in Yoox Net-a-porter to Farfetch and Alabbar.

Richemont has already written down the $300 million in convertible senior notes issued by Farfetch Limited to Richemont in November 2020 after the deal was first announced.

Other than the deal to sell YNAP and to partner with Farfetch on back-office tech operations, Richemont said it had no financial obligations toward Farfetch.

Late last year, when the extent of Farfetch’s financial woes emerged, Richemont sought to reassure its own investors and said it did not envisage “lending or investing” into the troubled platform.

Coupang, meanwhile, has not gone public with its plans for the companies in the Farfetch portfolio, which include the retailer Browns in London; New Guards Group; Stadium Goods, and a $200 million stake in Neiman Marcus.

As reported earlier this month, the Italian private equity firm Style Capital is eyeing New Guards Group, which is home to 10 international brands, including Marcelo Burlon County of Milan, Palm Angels, Heron Preston, Alanui and There Was One. NGG is also the licensee of Off-White and is the European partner of Reebok.

Roberta Benaglia, founder and CEO of Style Capital, was cautious about the outcome of talks to acquire the company. “It’s complicated, there are several major parties involved,” she said.

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