PARIS/MILAN, March 30 (Reuters) - Italian online fashion retailers Yoox and Richemont's Net-a-Porter confirmed merger talks were under way to create a leader in the fast-growing online luxury market.
The deal, which could be announced as early as on Tuesday, would combine Yoox's leading discounts offer with Net-a-Porter's full price, current season items.
It would also better equip the pair against competition, particularly in Asia and the United States, and allow them to negotiate better courier deals and terms with client brands.
Myriad online luxury goods retailers have sprung up in recent years and upmarket department stores such as Harrods, Saks Fifth Avenue, Bergdorf Goodman and Printemps have stepped up their investments in online trading and services.
Yoox shares rose more than 8 percent after Reuters reported on Friday an agreement was in the works and late on Sunday that a deal could be unveiled this week. . By 1538 GMT, Yoox shares were up nearly 10 percent at 23.18 euros valuing it at 1.42 billion euros ($1.54 billion) while Richemont shares remained fairly flat.
Net-a-Porter (NAP), which is estimated to have sales of more than 700 million euros in the fiscal year just ending, is gauged by analysts to be worth between 1.3 billion and 1.5 billion euros using industry multiples.
Yoox made revenues of 524.3 million euros in 2014, up 15 percent, or 17.7 percent at constant exchange rates, while NAP's revenues in the year to March 2014 were up 22 percent to 532.7 million pounds sterling.
"Strategically, a merger between Yoox and NAP would be positive, in our view, as we see the two businesses as highly complementary with very little overlap," JP Morgan said in a note.
NAP made an operating profit before foreign exchange losses and other charges of 22.4 million pounds sterling in its last fiscal year, up from 16 million pounds sterling the year before.
Yoox said it was discussing with Richemont "a potential business combination" with Net-a-Porter, adding it could not comment further for now. Shortly after, Richemont made a similarly brief statement confirming the talks.
Cartier owner Richemont is keen to retain a stake in the combined entity so that it can preserve exposure to the online luxury market, sources close to the matter said, intimating that an equity deal, as opposed to a cash deal, was on the cards.
Richemont received informal offers from at least four different investment firms in the past few months valuing Net-a-Porter at as much as 2.2 billion euros, sources with knowledge of the situation have said.
But the Swiss group does not want to sell NAP for cash, having already more than 4 billion euros on its balance sheet.
Buyers increasingly use the Internet to hunt for exclusive off-the-runway products or discounted items. And buying online saves time. But retailers such as Net-a-Porter make little or no money if too many products are returned, which can happen.
Online luxury retail generally is not yet very profitable.
Both Yoox and NAP's operating margin is around 5 percent - while that of big luxury brands such as Gucci is 30 percent - but it is the fastest growing segment of the industry as many luxury brands have only recently started embracing the Internet.
Luxury online sales grow fast because they are underdeveloped, making up only around 5 percent of total luxury sales. When it comes to shoes and handbags, they represent more than 8 percent.
NAP and Yoox explored merger talks at the end of 2013 but could not agree on a deal. This time round, Richemont may use a sizeable payout it promised NAP founder Natalie Massenet when it bought control five years ago and which is due now, based on the value of the company, as an incentive to strike a deal with Yoox. ($1 = 0.9183 euros) ($1 = 0.9241 euros) (Additional reporting by Valentina Za; Editing by Sophie Walker and Janet McBride)