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Hedge fund criticises Boohoo's management incentive scheme

Lauretta Roberts
30 June 2020

Boohoo is facing criticism from activist shareholder Shadowfall over the £150m management incentive scheme revealed last week.

The hedge fund and shareholder said it had concerns about the plan, which did not require a shareholder vote since Boohoo is listed on AIM, which is highly regulated.

Under the terms of the scheme, if the company reaches a share price of 600p in three years' time, it will pay out its maximum of £150m. At the time of writing its shares are at 403.8p.

Co-founders Mahmud Kamani and Carol Kane will hold 33.33% of the plan, while finance director Neil Catto will hold 6.67%. Samir Kamani, son of Mahmud and CEO of BoohooMAN has been identified as part of a long-term succession plan to take over more responsibility across the group’s brand portfolio, and will hold 16.67%. The remaining shares will be distributed among other key individuals with none holding more than 3%.

If scheme pays out in full Mahmud Kamani and Kane will each receive £50m and will receive smaller sums if it reaches less stretching targets. CEO John Lyttle is set to receive a £50m bonus if the company reaches a market capitalisation of £6bn by March 2024 under a different incentive scheme.

The latest scheme was announced a day after a positive trading update which sent the business's share price up by 6.6% prompting Shadowfall to question the timing of the announcement.

Matthew Earl, Shadowfall’s managing partner, told The Times: “We believe the timing of the reference price immediately before this update is particularly odd given management’s likely awareness of the content of that trading update. Especially considering the fact that the shares rose sharply on the back of it.”

Boohoo however refuted the claim saying it had only announced the scheme after it was out of a closed period and that the 600p target would have remained the same irrespective of the contents of its trading update.

Shadowfall has previously accused Boohoo of exaggerating its free cash flow and of treating cash generated by subsidiary PrettyLittleThing as if it owned the company outright. At the time it owned 34% of the business which was founded by another son of Mahmud Kamani, Umar Kamani.

Boohoo again refuted the claims and, just a day after the accusation was made, announced it had acquired all of the remaining capital in PrettyLittleThing for £268.9m. 

The company has stated that its aim is to create a global group of online fashion brands in a similar vein to H&M and Inditex. Its portfolio includes Boohoo, BoohooMAN, PrettyLittleThing, Nasty Gal and Miss Pap, which are all in the fast fashion space. Last year it moved upmarket acquiring the Karen Millen and Coast brands from the collapsed Icelandic bank Kaupthing, converting them to online-only brands.

Recently it bought the IP and assets of their former stablemates Oasis and Warehouse from restructuring company Hilco after they collapsed into administration and their stores were closed. They too will be relaunched as online-only entities.

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