Noteholder group mobilizes to challenge Coupang deal to buy Farfetch
The 2027 Ad Hoc Group (the Group) announced today it has formed to explore options over the proposed acquisition of the Farfetch business by Coupang. The Group is comprised of institutional investors with combined AUM of over US$1 trillion, holding over 50% of Farfetch's 3.75% Convertible Senior Notes due 2027.
The Group has appointed Pallas Partners as legal counsel and Ducera Partners, an investment bank, as financial advisors, 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 a first step, Group members have declared a default under the 2027 Notes and accelerated those Notes, so they are immediately due and payable in full. 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.
The Group has serious concerns about how Farfetch went from guiding the market to YE 2023 liquidity of over US$800 million in August 2023, to a distressed sale four months later. At the time of the announcement of the agreement, analyst consensus (including its house broker JPMorgan) estimated Farfetch's enterprise value to be in excess of US$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.
Further, and equally concerningly, the terms of a transaction support agreement (TSA) with Coupang, Greenoaks and others, which Farfetch entered into on 18 December 2023, risks making it unviable for any other bidders to present an alternative, value-maximizing offer. If Farfetch pursues an alternative transaction, any competing bidder would, in effect, have to pay a US$1 billion fee, reflecting a 1.95x MOIC on undrawn bridge loans, and term loans, and a further US$20 million cash termination fee. Consenting term lenders are being paid a consent fee of 7.5% - materially higher than market practice ? to support the transaction, despite its value-destruction.
The Group believes 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, several of whom have been publicly identified.
There appears to have been no transparency or governance in this process, which has reportedly left many of Farfetch's luxury retail partners uncomfortable and considering severing ties. Indeed, on the day it announced the TSA, Farfetch also announced that all of the independent directors of Farfetch Limited had resigned from their positions on the Board, leaving just José Neves, founder, Chairman and CEO, as the sole Board member.
"The Group believes this process sets an incredibly dangerous precedent," said a spokesperson for the 2027 Ad Hoc Group. "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. The Group is urgently considering appropriate next steps."
Notes to Editors:
About the 2027 Ad Hoc Group
The 2027 Ad Hoc Group is a group of funds managed by institutional investors managing a combined AUM in excess of US$1 trillion. The Ad Hoc Group of creditors holds over 50% of Farfetch's 3.75% Convertible Senior Notes due 2027.
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