Coupang, Inc. current report, 18 December 2023

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Coupang, Inc. Form 8-K Summary

Reporting date: December 18, 2023. This 8-K reports Coupang’s entry into a transaction structure to potentially acquire the business and assets of Farfetch Holdings plc through Athena Topco LP, a Delaware limited partnership formed with Greenoaks Capital Partners, LLC. The filing does not provide current-period operating or financial results for Coupang.

Transaction and Key Financial Terms

  • Coupang and Greenoaks established Athena Topco to pursue the acquisition of Farfetch’s global luxury-fashion marketplace business.
  • Athena Topco committed a $500 million first-lien delayed-draw term loan facility to support Farfetch’s working capital, operations, and expenses under an agreed financial plan.
  • Bridge Loans accrue interest at 12.5% annually, compounded monthly as payment-in-kind interest, and rank pari passu with Farfetch’s existing term loans.
  • Farfetch’s existing term loans have an aggregate principal amount of $600 million. Following a completed sale, one or more Farfetch obligors are expected to offer to repurchase 10% of the outstanding term loans at par.
  • If specified termination events occur, the Bridge Loans generally become payable at 1.95 times the full $500 million commitment plus accrued and unpaid interest, subject to the stated liquidation provisions.
  • If the sale closes, funded Bridge Loans will be exchanged for the Farfetch Business and the remaining commitment will terminate. Athena Topco will also contribute up to $300 million, reduced by funded Bridge Loans, and commit to make available an additional amount of up to $500 million for transaction costs, working capital, and general corporate purposes during the following 12 months.
  • Coupang will initially hold 80.1% of Athena Topco and Greenoaks-related funds will hold 19.9%. Capital contributions will generally be made in those proportions.

Material Changes, Conditions, and Outlook

  • Farfetch is required to conduct a marketing process for all of its assets through JPMorgan. Absent a competing transaction, the parties expect the business to be sold to Athena Topco through an English-law pre-pack administration process.
  • The transaction is subject to regulatory approvals, third-party consents, amendment of the Amended Credit Agreement, and Athena Topco acceding as parent under that agreement.
  • An exclusivity period extends through April 30, 2024. A competing transaction during the period generally triggers a $20 million termination fee payable by Farfetch to Athena Topco.
  • The filing provides no Coupang revenue, profit, cash-flow, margin, debt, liquidity, or earnings guidance figures for the reporting period.
  • Management did not provide a quantified outlook for the combined business. Expected benefits and timing remain contingent on completion of the proposed transaction.

Governance, Related-Party Matters, and Risks

  • Coupang may appoint two managers to Athena Topco’s board and Greenoaks may appoint one. Both parties will have specified consent and approval rights.
  • Neil Mehta, Coupang’s lead independent director, founded and is a managing partner of Greenoaks. Greenoaks and related parties, including Mr. Mehta, collectively own approximately 4.4% of Coupang’s Class A common stock.
  • Key risks include failure or delay in obtaining approvals, termination of the support agreement, completion of a competing transaction, the UK pre-pack administration process, disruption to operations and business relationships, employee-retention challenges, management distraction, litigation, integration difficulties, and failure to achieve expected benefits.

Important Facts to Verify

  • Whether required regulatory approvals, third-party consents, and credit-agreement amendments are obtained.
  • Whether the Farfetch asset sale closes by the contemplated pre-pack administration process and whether any competing transaction emerges before April 30, 2024.
  • The amount of Bridge Loans actually drawn, the resulting PIK interest burden, and any repayment or exchange obligations.
  • The sources and timing of Athena Topco’s $300 million contribution and potential additional $500 million funding commitment.
  • The final accounting treatment, purchase price allocation, impairment exposure, liquidity impact, and consolidation effects on Coupang after closing.
  • Potential conflicts and governance implications arising from Greenoaks’ ownership interest and Mr. Mehta’s relationship with both parties.