Is Frasers Group trying to fashion an online mega-merger with ASOS and Boohoo?

Sensing blood in the water, the Frasers Group shark is circling. Frasers Group – Mike Ashley is the controlling shareholder with a near 70% stake – recently nearly doubled its stakes in fast fashion giants, Boohoo and ASOS.

Frasers, which owns Sports Direct, House of Fraser and Flannels among others, has now increased its holding in Boohoo to 9.1% from 5.23%, meaning it now owns 115.4 million of its shares, worth around £38.3 million. In the same month, Frasers Group increased its shareholding in ASOS to 19.3%, up from 10.6%. Frasers Group is now the second largest shareholder in ASOS.

Trying to guess Frasers Group’s long term intentions is a full time game. It is well known for buying large chunks of shares and then dumping them quickly. The group recently sold half its shareholding in Next, after the shares rose by 15%, and now holds 500,000 shares.

Frasers Group are opportunists and one of the reasons they have been so successful. The company said that it has “a clear strategy to identify opportunities to invest in businesses which complement our existing sport, premium and luxury businesses, or help us to build and further utilise our sector-leading ecosystem.”

Could this trigger a potential giant, online fast fashion merger?

Within the fast fashion sector, Frasers Group already own Missguided and I Saw It First. It bought Missguided out of administration in June 2022 and I Saw It First in July 2022.

ASOS and Boohoo’s shares are languishing. ASOS’ market value is currently around £510 million, while Boohoo’s is £440 million. In the year to date, the revenue of ASOS declined by 9% to £2.7bn. The shares are sitting at 420p, down from pandemic high of around 5700p in March 2021.

ASOS’ shares are currently trading at a price-to-sales (P/S) ratio of around 0.1 times. This is attractive when compared to the sector average of 0.3 times.

Frasers Group could have a fight on its hands if it wants to grab control of ASOS on the cheap. Its largest shareholder, Anders Holch Povlsen, Chief Executive Officer at Danish fashion brand Bestseller, holds 27.1% of shares through his Aktieselskabet company and is said to be keen to see ASOS remain as a listed entity. Another major ASOS shareholder, Camelot Capital Partners, recently upped its percentage from 13.06% to 14.02%.

The Sunday Times reported ASOS was approached with a $1.24 billion takeover bid in December 2022 by Trendyol, a Turkish online competitor backed by Chinese e-commerce giant Alibaba.

They had approached Povlsen to see if he was also interested in partaking in the deal, but he clearly thinks the business is worth a lot more. Povlsen has had a long-term interest in ASOS.

ASOS has been struggling with excess inventory, recently launching an outlet site to clear it, and suppliers started to sever ties after credit insurers withdrew cover amid concerns over its falling profits. In May, ASOS has tapped shareholders for £75m as the loss making retailer attempts to repair shore up its balance sheet.

Boohoo

At Boohoo, co-founder and executive chairman, Mahmud Kamani, is the largest shareholder, holding 17% of shares outstanding. With 8.85% and 5.23% of the shares wondered by Schroder Investment Management Limited and Camelot Capital Partners respectively. With 9.1% Frasers Group is now the second largest shareholder.

Camelot Capital Partners has significant stakes in both brands and could be the king maker.

Frasers Group is seeing value. If it can takeover these companies at these prices it will. If it doesn’t, it is likely it will make a decent profit on its stake because the companies feel undervalued. Frasers Group has nothing to lose.

There could be a competition issue with so many players in one group in respect to a mega merger. But, it would depend on the individual brand’s market shares at the time. It is also difficult to argue when there is so much competition in the fashion market both online and offline.

Frasers Group is shrewd. It currently has major stakes in Mulberry, Hugo Boss and N Brown. Like any shark, it will strike when the timing is right or simply continue to prey on anything showing signs of weakness. (Watch out, Superdry).

Frasers Group’s fashion stakeholdings

Mulberry 36.8%

ASOS 19.3%

N Brown 17.88%

Boohoo 9.1%

Hugo Boss 3.9%

Main image: ASOS SS23