After seeing a large 20% increase on Wednesday due to investor excitement over the deal for a share in YNAP, Farfetch Limited (NYSE:FTCH) increased by another 1.21% in early trading on Thursday.
During intraday trading today, the price of Farfetch’s stock (FTCH) surged by more than 20%. Investors are reacting to the news that Richemont, the firm that owns the brands Cartier, Montblanc, and Van Cleef & Arpels, has agreed to exit its online branch Yoox Net-a-Porter (YNAP). Richemont has agreed to sell its 50.7% stake in YNAP, of which 47.5% will go to Farfetch, and 3.2% will go to Emirati entrepreneur Mohamed Alabbar.
Stock will be used to finance the majority of this transaction. According to reports, after five years of the deal’s completion, Farfetch would pay between 53 million and 58.5 million shares and $250 million. Additionally, Richemont intends to acquire a 12% to 13% stake in Farfetch.
According to Wells Fargo, the YNAP purchase makes sense for Farfetch (FTCH) and offers the online retailer even greater potential benefits.
According to analyst Ike Boruchow, FTCH obtains more clout with luxury houses by basically running their biggest rival and having access to Richemont’s portfolio of hard luxury brands. Boruchow also mentioned improved FPS business reputation and market access to Richemont’s Maisons.
“According to us, a deal like this might alter the course of history. Solidify share position, boost brand leverage, etc. are not just anecdotal examples; the statistics over time might be pretty significant.”
Wells Fargo anticipates the migration of all Richemont brands to the FPS platform as well as the conversion of a sizeable chunk of YNAP to e-concession. The company estimates the potential for an additional $3.25 billion in GMV, $500 million in revenues, and $325 million in EBITDA under the assumption of a 15% TR and a 65% GM.
Following the transaction, Wells Fargo maintained its Overweight rating and $25 price objective on Farfetch (FTCH), indicating that the stock may increase by more than that amount.
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