Boohoo buys remaining stake in PrettyLittleThing
By Michele Maatouk
Date: Thursday 28 May 2020
(Sharecast News) - Fast-fashion retailer Boohoo said on Thursday that it has bought the remaining 34% stake in PrettyLittleThing from its minority shareholders for an initial consideration of £269.8m.
The stake is being bought from Umar Kamani - the son of Boohoo's co-founder Mahmud Kamani - and Paul Papworth.
Boohoo said the acquisition price could rise to £323.8m if the PLT shares price averages 491p over a six-month period between completion and 14 March 2024.
The acquisition is expected to be significantly earnings enhancing on a fully diluted basis with immediate effect.
"After this acquisition and with its growing platform of wholly owned, innovative fashion brands, the group believes it can continue to successfully disrupt the international markets it operates in today, whilst retaining a strong balance sheet in order to take advantage of numerous M&A opportunities that are likely to emerge in the global fashion industry over the coming months," the company said.
Boohoo bought its initial 66% stake in PLT in January 2017.
The acquisition comes just days after short-seller ShadowFall put out a damning report on Boohoo, accusing the retailer of misleading investors over cash flow and profits.
"In reporting £81.7m free cash flow in FY20, we believe that Boohoo has provided a misleading impression of its true FCF by £32.2m or by 65% against this true FCF figure," ShadowFall said.
It said Boohoo doesn't appear to include any tax payment within its FCF, even though its own auditor guides that this should be included. It also argued that Boohoo includes in FCF all cash generated by PrettyLittleThing as though it were 100% wholly owned.
At 0940 BST, the shares were up 13% at 377.40p.
Broker Liberum said: "This is a very shrewd and positive move by Boohoo's management team that removes one of the major clouds that has hung over the equity story. PLT has been the best performing part of Boohoo Group, growing sales at a 111% compound annual growth over FY17-FY20 and now makes up 42% of group sales."
Zeus Capital said the announcement "provides a clear and swift resolution to any overhanging uncertainty surrounding the status of the PLT minority in the group".
"The terms of the transaction are, in our option, highly attractive and provide existing shareholders with an immediate and significant enhancement to diluted earnings per share."
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said that even if the acquisition price rises to £323.8m, "it would appear Boohoo's taking the new assets home at a decent price".
"Apart from Pretty Little Thing's impressive sales performance since Boohoo acquired its majority stake back in 2017, there are other reasons for optimism. Namely, execution risk is vastly reduced in this deal. Pretty Little Thing has been part of Boohoo's story for a while now, so this won't come as a shock to the operating system and means the benefits can be reaped quickly."
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