Shares of luxury retail e-commerce company Farfetch (FTCH -2.22%) were rocketing higher today, up as much as 31% before settling into a 25% gain as of 1:55 p.m. ET.
The London-based Farfetch actually reports its third quarter earnings tomorrow, but today, British paper The Telegraph reported its founder may be looking to take the beaten-down company private, with the help of banks and top shareholders.
Farfetch's stock has swooned amid a tepid economic environment in the U.S. and China, and has seen its shares slump 64% this year and 98% from the company's all-time high around $73 in 2021. The stock's recent low was $1.31 per share, a dramatic collapse that has apparently sent Farfetch's founder looking to take the stock off the market entirely.
Jose Neves has had enough?
Today, The Telegraph reported Farfetch founder and CEO Jose Neves is currently in talks with bankers and some of Farfetch's top shareholders, including luxury giant Richemont and Alibaba, about taking Farfetch private.
A buyout would likely come at a premium to the stock, which is why Farfetch's share price is spiking so much off its extremely low levels today. In addition, short-sellers, who had shorted about 12.5% of Farfetch's shares as of Nov. 15, may be covering their bets.
For perspective, Farfetch's market cap had fallen to below $600 million in recent days, despite the company having guided for some $2.5 billion in revenue this year, which would still be an increase over last year, despite industry headwinds.
So, that sell-off may have seemed overdone, but Farfetch is still losing money despite cost cuts, and its balance sheet is also somewhat of a concern, with some $917 million of debt as of June 30, Moreover, the company noted in August it had borrowed another $200 million after the end of the quarter.
Still, it appears Neves is confident he can still run the company better than the market believes, and it appears he will attempt to buy out his public shareholders.
A mixed blessing?
The Telegraph reported a deal could be announced "imminently," so investors may likely hear something tomorrow on the company's scheduled earnings release. If so, current shareholders may enjoy a quick boost in their holdings, but may miss out on a bigger recovery if a recession is avoided and the company turns around. Yet on the other hand, the not insignificant risk of bankruptcy would also be relieved, so a buyout at a premium would be somewhat of a mixed blessing.
