Boohoo Group has acquired the remaining shares in prettylittlething.com after refuting allegations that it overstated the profitability of its subsidiary.
Shares in the group fell 5.8 per cent on Tuesday then another 4.3% on Wednesday after short seller ShadowFall claimed boohoo has provided “a misleading impression” of its free cash flow and understated costs associated with PLT.
PLT was co-founded by CEO Umar Kamani, the son of boohoo chair and co-founder Mahmud Kamani.
boohoo bought a 66% stake in PrettyLittleThing for £3.3m in 2016 and had the option to acquire the remaining 34% stake from minority shareholders Umar Kamani and Paul Papworth by 2022, which it has quickly taken up following the publication of ShadowFall’s 53-page report.
The deal is for an initial consideration of £269.8m, potentially rising to £323.8m, with Umar Kamani, Papworth and the senior management team remaining in place.
Boohoo Group recently raised £200m via an equity placing to take “advantage of numerous opportunities that are likely to emerge in the global fashion industry over the coming months”.
“We see a risk that BOO doesn’t use its recent cash call for mergers & acquisitions, but instead combines it with its considerable £241 million net cash, to be paid to BOO’s chair’s son, through material dividends and a potential PrettyLittleThing [non-controlling interest] buy-out,” stated ShadowFall in its report.
The short seller claims that it “seeks truths hidden by aggressive corporate accounting, flawed business models and unethical practices within listed companies, exposing situations where market value exceeds intrinsic value”.
Boohoo issued a rebuttal on Wednesday. “All inter-company transactions are conducted on an arms’ length basis,” it stated.
“The group operates a multi-brand strategy with the profitability of its more established brands such as boohoo and PLT being significantly ahead of the group’s adjusted Ebitda margin of 10.2%; with that higher margin being reinvested into new opportunities and brands that the Group has started or acquired in recent years such as boohooMAN, Nasty Gal, MissPap, Karen Millen and Coast.”
In announcing the acquisition of the remaining shares in PLT on Thursday morning, the group stated: “By acquiring the remaining 34% stake in PLT today, the group is taking an important further step towards achieving its vision to lead the fashion eCommerce market globally by accelerating full ownership of a brand that is in high growth with enormous growth potential ahead of it, in a transaction that creates significant value for the group’s shareholders.”
Boohoo Group claims PLT generated £516m of net sales in the year ending 29th February 2020 – compared with £55m in the year ending 28th February 2017 – and said its adjusted after-tax profit for the most recent period was £86m.
It said it had returned £69.9m of this to shareholders, with the difference of £16m “the minority shareholders’ 34% interest in the adjusted after tax profits of PLT”.
Umar Kamani said: “This deal represents another milestone in our journey at PLT. Since being a disruptive start-up in 2012 to a global fashion brand that generates over half a billion pounds in sales today, I am incredibly proud of what my team and I have achieved in such a short period of time.
“The team and myself have big ambitions for the brand, and I’m incredibly excited about what the future holds for PLT as it embarks on the next stage of its global journey as a fully-owned part of the boohoo group.”
John Lyttle, Group CEO, commented: “We are delighted to be acquiring the remaining 34% stake in PLT. It has been a brand that has delivered strong growth as part of the boohoo group’s platform, and has a great future ahead of it in the UK and overseas.
“I look forward to building on the great working relationship with Umar and the senior team at PLT as the Group continues to move forwards with its multi-brand strategy as part of its vision to lead the fashion e-commerce market globally.”