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Net-a-Porter management, minority owners in talks to cash out
April 3, 2015 / 5:58 PM / 2 years ago

Net-a-Porter management, minority owners in talks to cash out

PARIS/NEW YORK (Reuters) - Executives and early investors in Net-a-Porter (NAP) are trying to agree with Richemont what should be the fair value of their combined 7 percent stake in the online fashion retailer, as they seek to cash out ahead of its planned merger with Yoox, sources close to the matter said.

NAP and Italian rival Yoox unveiled a merger this week to create the world’s biggest online fashion and luxury goods retailer, with combined sales of more than 1.3 billion euros ($1.4 billion), a deal that lifted Yoox shares more than 30 percent.

When Swiss luxury group Richemont bought control of NAP in 2010, it agreed a series of put and call arrangements with NAP investors, managers and founder Natalie Massenet that activated on April 1, 2015.

Some of the details of that agreement were made public in Richemont’s 2010 annual report.

Richemont gave NAP management and early backers shares in the entity created in 2010 to buy NAP, which entitled them to an “economic entitlement” equivalent to 14 percent of any increase in equity value of the business reached by March 31, 2015.

According to sources with first-hand knowledge of the matter, there is disagreement between Richemont and those minority NAP shareholders over the fair valuation of the company that would determine the size of the payout resulting from the sale of their shares.

The merger with Yoox values NAP at around 1.5 billion euros, according to analysts, but according to the terms of the agreement between Richemont and minority NAP shareholders, its value was based on metrics such as sales growth and profitability which would give it a different value.

Richemont and NAP declined to comment.

TRANSFER OF VALUE

People close to the talks say there has effectively been a transfer of value from Richemont shareholders to Yoox shareholders as they became 30 percent richer after the deal was announced, an increase that did not benefit Richemont and NAP minority shareholders. Richemont shares have barely moved since.

Richemont, which makes the bulk of its profits from jewelers such as Cartier and Van Cleef & Arpels, acquired control of NAP in 2010 in a deal that valued it at 392 million euros. As NAP is not yet very profitable it accounts for a small fraction of Richemont’s market value.

On the basis of a valuation of 1.5 billion euros, NAP’s increase in value would be more than 1.1 billion euros between March 31 2010 and 2015 and minority investors’ economic entitlement could be more than 155 million euros.

Richemont’s accounts show it has been making provisions of around 21 million euros a year since 2010 in anticipation of the earn-out payment to NAP minority investors, giving it a pot of about 105 million by March 31.

If Richemont and the NAP shareholders fail to find an agreement, the matter would have to be settled through an arbitration process, the sources said.

NAP executives, including Massenet who owns 4 percent and will be executive chairman of the combined group, will receive a new incentive package including stock options once the merger is complete, the sources said.

($1 = 0.9100 euros)

Editing by David Holmes

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