Bling ambitions
Loeb is no stranger to taking on big and entrenched European companies. In 2017, he took a stake in Swiss consumer giant Nestlé. Last month he urged oil giant Royal Dutch Shell to break itself up to better face the challenge of climate change. At Richemont, he may team up with Artisan Partners, which has a 1.2% stake in the Swiss company and earlier this year helped oust Danone boss Emmanuel Faber.
Investors have reason to grumble. Though Richemont has generated a total return of 100% for shareholders in the past five years, luxury rivals such as LVMH, Kering and Hermès International have returned 300% or more. Including debt, the Swiss group is valued at 11 times expected EBITDA for 2022, against an average of 15 times for its top European luxury peers. Richemont’s inability to turn to a profit at digital arm Yoox Net-a-Porter (YNAP) years after acquiring full ownership is a particular sore point.
Yet, brute force won’t work. Rupert’s special B shares give him just over 50% of Richemont’s voting rights even though they account for just around 10% of the company’s equity. That means he can veto any change proposed by investors, and resist unwanted takeovers.
To unlock value, therefore, investors will need to come up with a plan the 71-year-old will support. One idea is to sell YNAP or merge it with a rival online marketplace like $14 billion Farfetch. That would immediately remove an operating loss likely amounting to around 200 million euros a year. A more ambitious plan would be to contemplate a tieup with Kering to create a luxury conglomerate able to rival sector leader LVMH.
But any changes will depend on Rupert’s approval. For activist investors, coaxing rather than conflict will be the key.