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Net-a-Porter Is Only Getting in Cartier’s Way

Net-a-Porter Is Only Getting in Cartier’s Way

Activist investor Dan Loeb’s Third Point LLC has built a stake in Cartier-owner Cie Financiere Richemont, according to reports.

Third Point is giving little away about its intentions, but if Loeb’s earlier campaign at fellow Swiss company Nestle SA is anything to go by, changes to the luxury group’s portfolio could well be on the agenda. Offloading Richemont’s loss-making e-commerce business Yoox Net-a-Porter is the obvious route toward lifting the share price. Long-term Richemont shareholder Artisan Partners also told Bloomberg News that YNAP was weighing on the valuation.

Richemont bought the roughly 50% of YNAP it did not already own almost four years ago, in a deal valuing the online business at just over 5 billion euros ($5.8 billion). Although this brought valuable digital expertise to the conglomerate, which also owns jeweler Van Cleef & Arpels and watchmakers IWC and Panerai, YNAP’s losses proved stubbornly hard to stem.

Net-a-Porter Is Only Getting in Cartier’s Way

If pushing for the sale of YNAP is part of Loeb’s plans, he may be knocking on an open door. But getting rid of the internet-based retailer of Loewe bags, Halston gowns and Cartier watches would be the straightforward part. The more challenging activist play would be influencing the company with Chairman Johann Rupert at the helm. He holds 10% of the equity and 51% of the voting rights. Until recently, Richemont had been trailing rivals LVMH Moet Hennessy Louis Vuitton SE and Kering SA.

Richemont is mulling several options for YNAP, online publication Miss Tweed reported last month. Rupert himself said at Richemont’s annual meeting in September, that “after years of absorbing heavy investments, we are now finally seeing other parties willing and eager to share the evolving platforms.”

A year ago, Richemont and China’s Alibaba Group Holding Ltd. agreed to invest in rival online store Farfetch Ltd. I noted at the time that combining YNAP and Farfetch would be the most fitting endgame, particularly if that involved spinning off YNAP from Richemont. Selling the division to Amazon.com Inc. is another possibility. A disposal, or at least some comments on its progress, could come on Friday when Richemont announces its first-half earnings.

It’s not clear whether Richemont would generate the 5 billion euros implied by the January 2018 deal. Although tech valuations are high, and players such as Amazon are expanding into online luxury, YNAP’s progress has stalled. 

Either way, investors are keen on Richemont ridding itself of its problem child. Its shares have risen about 7% since the latter half of last week. 

Without YNAP, Richemont would primarily be a watches-and-jewelry business, led by Cartier. Its fashion brands, including Chloe and Dunhill, are pretty small. I’ve argued before that the company is a valuable acquisition target in a consolidating luxury market; getting rid of YNAP would make it even more so. 

While LVMH acquiring Richemont would create the undisputed leader in luxury, a combination with Kering looks the most plausible, given that Richemont and the Gucci-owner already work together. Putting Kering’s fashion brands and Richemont’s jewelry under one roof would create a worthy challenger to LVMH’s might.

With a market capitalization of  about 71 billion Swiss francs ($78 billion), even before any takeover premium, buying Richemont would be a sizable transaction. The luxury giants, LVMH and Kering, however, have enjoyed strong recoveries — and balance sheets — in the wake of the pandemic. They could afford a deal with their Swiss rival.

Net-a-Porter Is Only Getting in Cartier’s Way

And there may never be a better time for Rupert to negotiate a transaction. Since the start of the pandemic, Richemont shares have outperformed those of Kering and are on a par with LVMH. How he steers the company — whether toward an independent future or a merger — will determine the long-term structure of the luxury industry.  

So far, Rupert has insisted that the company is not for sale. But even he must know he’s in a very strong position to play his trump card at last. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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