- Debt deal characterisation ‘inaccurate and unfair’
- Search for new CEO underway
- Further drama to unfold
Hard-pressed online fashion group Boohoo (BOO:AIM) has given a robust response to Frasers’ (FRAS) bid to install Mike Ashley as its new CEO, questioning whether putting the retail tycoon in charge would be in the interests of shareholders other than Frasers.
Boohoo’s bombed-out shares ticked up 1% to 29p as the retailer batted back Frasers’ criticism of its recent refinancing and said it is pressing on with its search for a replacement for CEO John Lyttle, who is standing down following a disappointing five years at the helm.
BOOHOO BITES BACK
Here’s the background to this fast-moving boardroom spat.
Frasers, controlled by mercurial retail magnate Ashley, published an open letter on 24 October after being stone-walled by the board in its attempts to meaningfully engage in discussions to address Boohoo’s ‘leadership crisis’, ‘abysmal trading performance’ and ‘mismanagement’.
But Boohoo’s spiky response claims several parts of the letter were inaccurate and unfair, notably Frasers’ characterisation of Boohoo’s recent £222 million debt refinancing, which the Sports Direct-to-Flannels owner called unsatisfactory and a step backwards for shareholders.
‘The refinancing provides certainty for the company around its future requirements and is supported by its existing group of high street banks,’ said Boohoo.
‘The company’s approach to its recent debt refinancing was discussed on numerous occasions with Frasers and its advisers. As part of those discussions Frasers were advised that the board would be pleased to consider any alternative proposals they might wish to present, but none were forthcoming.’
CAREFUL CONSIDERATION
Boohoo, which owns the eponymous fashion label as well as the Karen Millen, PrettyLittleThing and Debenhams brands, stressed that careful consideration of Mike Ashley’s significant shareholdings in peers such as Frasers, were he controls 73% of the equity, and ASOS (ASC), in which Frasers has a 23.6% stake, is now needed.
The Manchester-based firm said it is open to considering the appointments of Ashley and Mike Lennon as board members but in a constructive manner, and ‘before any appointment can be made, appropriate governance will be required to protect the company’s commercial position and the interests of other shareholders’.
Boohoo added that a separate appointment for the CEO role is critical, a search for John Lyttle’s replacement is underway, and shareholders should expect Lyttle to remain in his role until this is concluded.
The embattled retailer, whose sales fell 15% to £620 million in the six months ended 31 August, has launched a strategic review of its divisions to ‘unlock and maximise shareholder value’, code for corporate restructuring which points to a sale or demerger of some of its assets.
EXPERT VIEWS
AJ Bell investment director Russ Mould said: ‘Boohoo continues to review the validity of the requisition for a meeting to vote on Ashley’s appointment as CEO but, based on past form, the retail tycoon is unlikely to disappear quietly whatever Boohoo’s response so we can expect this saga to run for some time to come.’
Shore Capital commented: ‘We believe action is needed by the group in order to turn the declining trading trends around and support the sustainability of the model in an increasingly competitive industry, what this action consists of is yet to be seen. We will watch as the drama unfolds.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
