Investors sue troubled Farfetch: ‘non-transparent’ rescue package cost them millions
Shareholders and employees plan to sue Farfetch after a “mysterious” rescue deal wiped out their stakes.
Hundreds of retail investors and workers are preparing to take legal action after losing millions of pounds when Korean group Coupang bought the luxury fashion platform.
Farfetch – founded in London by Portuguese entrepreneur José Neves in 2007 – is a marketplace for designer brands, and was once hailed as a British business success story.
The New York e-commerce business floated in September 2018 and its value peaked at around £16bn in 2021, boosted by the popularity of online shopping during the pandemic.
But by the time it was on the brink of collapse last year, Farfetch shares were down 97 per cent from their listing price and had a market capitalization of just £175m.
Unfashionable: Under the bailout, Farfetch founder José Neves (pictured) remains as the sole board member
In December, the company sold its business to Coupang – the so-called Amazon of Asia – in a rescue deal that was completed last month.
Investors are preparing a legal case against Farfetch, claiming the deal was “ambiguous”.
They have also raised concerns about the seemingly rapid decline of a company they believe is in good financial health.
A spokesman for the group, which includes current and former Farfetch employees, said: “We have serious concerns about the murky way in which the Coupang deal was completed.”
“Hundreds of people have lost life-changing sums of money.”
The company was making losses and concerns were raised about its debt levels and the viability of its business model when several designers tightened control over distribution.
The company has also been hit by a global slowdown in spending on luxury goods as wealthy people tighten their belts.
But the first clear sign that Farfetch was in serious trouble came at the end of November, a day before it was scheduled to publish third-quarter results.
Farfetch has made a shock announcement that it will not publish a financial update as planned, warning that “any previous forecasts or guidance should no longer be relied upon”.
Less than a month later, on December 18, Farfetch said that after a “thorough and extensive process,” it was unable to “secure additional liquidity” and was unable to continue as a going concern.
It announced the planned sale of the company to Coupang, which, in conjunction with investment firm Greenoaks Capital Partners, has provided a £398m bridge loan to allow it to continue trading.
The collapse: By the time Farfetch was teetering on the brink of collapse last year, its shares had fallen 97% from their listing price and had a market capitalization of just £175m.
The terms of the deal included an exclusivity clause of £800m, meaning rivals would have to pay a fee to make a competing bid.
It said shareholders and bondholders “will not recover any of their outstanding investments” after the sale.
All of the independent directors resigned when the deal was announced, leaving Neves, 49, as chairman, CEO and sole member of the board.
Coupang – the Seoul-based e-commerce giant – issued a statement last month announcing the completion of the pre-package management deal last month.
Angry shareholders – who claim to have lost tens of millions of pounds – are preparing to take legal action to try to recover their investments.
The group — which ranges from entry-level employees to executives — allege they were given stock options in lieu of bonuses and pay increases.
According to the group, restricted stock units — a type of stock-based employee compensation — increased employees’ tax burdens, even if they were never cashed out.
“Many people have worked at Farfetch for years in the same role without an increase in their base pay and a share scheme that effectively augmented employee income with virtual money. These shares are now worthless,” the spokesperson said.
“We are in discussions with lawyers and are actively working to lay the groundwork for action against Farfetch with the goal of restoring justice and recovering at least some of the millions of dollars worth of value lost.”
A separate group of bondholders – who own 50 per cent of Farfetch’s 2027 bonds – are also taking action against the company.
They have filed a “petition for winding up” in the Cayman Islands in an attempt to liquidate its holding company.
According to the petition, the bondholders demand the appointment of independent liquidators, the return of their money and an investigation into the collapse of the company.
The institutional investor group accused Farfetch of a “lack of transparency and corporate governance”, saying the sale had “raised significant concerns”.
Farfetch declined to comment.
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(tags for translation) Daily Mail