The uncertain future of Farfetch

Farfetch, the online platform for luxury goods, is going through a challenging period. Recently, the credit rating agency Moody's downgraded its rating to Caa2, a category close to "junk" status, due to the company's financial instability. However, Farfetch had hoped to see the light at the end of the tunnel with the intervention a month ago by the Korean e-commerce specialist Coupang. Indeed, the company, present in several Asian markets including South Korea, Taiwan, Singapore, China, and India, initiated the acquisition of Farfetch Holdings' assets. Through this operation, Farfetch is expected to receive an infusion of $500 million. Coupang's goal is to enhance Farfetch's service offering and expand its international customer base while trying to maintain the confidence of its fragile partner brands.

The platform is indeed threatened with bankruptcy due to its mixed business performance and accumulated debts. Since its listing on Wall Street in 2018 by its founder, José Neves, the company has experienced ups and downs. At its inception, Farfetch became the darling of the media, with its shares surging more than 50% on the day of its IPO, valuing the company at $6.2 billion. Although luxury remains a safe bet, and its overall market remains robust despite geopolitical uncertainties, the industry was slow to embrace the digital shift. This lag is reflected in Farfetch's stock performance: despite a promising start, its shares plummeted dramatically, losing over 97% of their initial value.

A rescue by the luxury giant Richemont had been considered, but negotiations fell through, and the Swiss group backed out. Farfetch's debt now stands at around $1.6 billion, to be repaid between 2027 and 2030, but investors fear the lack of essential funds to meet these deadlines.

Coupang's takeover offer has not been welcomed by all of Farfetch's institutional investors. They have formed the Ad Hoc 2027 Group, bringing together those assessing the last remaining alternatives for Farfetch to address its precarious situation. In a recent statement, the platform's management announced that they had appointed Pallas Partners as legal advisor and Ducera Partners (investment bank) as financial advisor. However, concerns remain about a potential devaluation of the company following Coupang's acquisition. Ad Hoc 2027 holds 50% of Farfetch's bonds - they would be convertible at an interest rate of 3.75% due in 2027 - for a sum of $1 billion. Concerned investors worry that these interests could significantly decrease after the takeover.

When Coupang made its purchase proposal in December, Farfetch's shares experienced a significant 38% drop in pre-market trading, reaching historically low levels. This complex situation raises questions about the future of Farfetch and the impact of the acquisition on its investors and business partners.