- Frasers pulls off another opportunistic deal
- Retailer buys 18.9% stake from hedge fund
- Two firms to collaborate on delivery
Shares in online electricals retailer AO World (AO.) jumped 6.6% to 74p after the firm announced that Sports Direct owner Frasers Group (FRAS) had acquired a big stake in the business at 68p per share as part of a new ‘strategic partnership’.
Trade magazine Retail Week, among others, suggested the 18.9% shareholding was acquired from London-based hedge fund Odey Asset Management after clients began withdrawing assets late last week.
WHY IS FRASERS BUYING A STAKE IN AO WORLD?
Michael Murray, chief executive, said Frasers had ‘long admired what John (Roberts) and the AO team have built’, and saw the £75 million acquisition as ‘the opportunity to form a supportive, strategic partnership’.
‘AO is a fantastic business with a clear strategy which is leading the market in online-only electricals. Through this investment, Frasers will benefit from AO's valuable know-how in electricals and two-man delivery, helping us to drive growth in our bulk equipment and homeware ranges’, added Murray.
AO founder and chief executive Roberts described the deal as ‘a fantastic endorsement’ for the business and said he looked forward to realizing ‘the significant potential’ of working with Frasers while the firm builds on its ‘pivot to profitable growth’ strategy.
Frasers’ 18.9% stake puts it second on the list of AO shareholders, behind Camelot Capital which owns 20.4% of the company as well as a 15% in online fashion retailer ASOS (ASC) where Frasers has recently increased its stake to just under 10%.
WHAT DO THE EXPERTS THINK?
Jefferies’ analyst Andrew Wade described Fraser’s move as ‘clearly more than opportunistic, and with AO's pivot-to-profit strategy putting the business in a much stronger position, we are inclined to see this development as a catalyst for collaboration between the two businesses - as well as further recognition that AO's shares offer upside potential’.
Shore Capital viewed the stake-building as offering ‘a gateway to partner on the fulfilment of two-man deliveries’ given Frasers’ own Manchester-based Studio Retail mail-order business relies heavily on delivery services for its household, electrical, bedding and furniture items.
AJ Bell investment director Russ Mould commented: ‘Frasers is always one to spot a bargain and the big sell-off in AO’s share price (from above 400p in 2021 to sub-40p last summer) will not have gone unnoticed.
‘It describes the investment as the foundation for forming a strategic partnership – while it is easy to speculate that Frasers will eventually acquire AO outright, it has form in taking equity stakes but not making full takeovers.
‘There is one odd thing about the deal, however. Logistics services are a commodity – it doesn’t need to spend £75 million on buying nearly a fifth of a business when it could talk to any number of delivery companies for help. Talk that Tuffnells is about to go into administration might even present an opportunity if it wanted to own a logistics firm.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (Martin Gamble) own shares in AJ Bell.
