Invezz.com - Frasers Group (LON:FRAS), controlled by retail tycoon Mike Ashley, has submitted a takeover offer for the entirety of Mulberry, raising alarm about the future stability of the British luxury handbag maker.
The takeover offer values Mulberry at 130p per share, amounting to a total valuation of £83 million for the company.
Frasers already owns a 37% stake in Mulberry and expressed its dissatisfaction with the company’s recent financial moves, which led to the bid.
Mulberry announced an emergency £10.75 million share placement late last week to strengthen its balance sheet, spurring the takeover attempt.
The luxury brand revealed plans to raise £10 million through the issuance of new ordinary shares, alongside a retail offering of up to £750,000.
These measures followed the release of the company’s annual results, which showed a concerning swing from a £13.2 million profit last year to a pre-tax loss of £34.1 million this year.
Frasers dissatisfied with lack of engagement
Frasers Group, a significant minority shareholder in Mulberry since 2020, expressed frustration over the lack of communication regarding the emergency share placement.
The company noted that it had not been informed of the proposed share issuance until shortly before it was announced. It said:
As a significant minority shareholder, owning approximately 37% of Mulberry’s issued share capital, Frasers was not aware of the proposed subscription until immediately prior to its announcement.
It emphasized that, as a long-term investor, it would have been willing to underwrite the entire share issuance, potentially on more favourable terms for Mulberry.
Frasers argued that the lack of engagement from Mulberry has rendered the current situation “untenable”, not only for Frasers but also for other minority shareholders.
Mulberry struggles with losses and declining sales
Mulberry has been facing increasing financial pressure.
The company’s most recent annual report showed that it suffered a pre-tax loss of £34.1 million for the fiscal year ending March 2024, a dramatic reversal from its £13.2 million profit the year before.
Sales also declined by 4% to £153 million during the same period, and further worsened with an 18% drop in sales for the 25 weeks since the fiscal year’s end.
In a statement issued on Monday, Frasers reiterated the challenges Mulberry faces, including rising operational costs, macroeconomic headwinds, and shifting consumer behavior, particularly among more selective discretionary buyers.
The retailer also voiced concerns over the latest audit opinion, which flagged “material uncertainty related to going concern.”
In its statement, Frasers explicitly referenced the collapse of Debenhams in 2019, a cautionary tale in the UK retail sector. It said:
As a 37% shareholder, Frasers will not accept another Debenhams situation where a perfectly viable business is run into administration.
The department store’s demise wiped out shareholders, including Mike Ashley’s Frasers Group, which had invested £150 million in the business and accumulated a near 30% stake.
This article first appeared on Invezz.com
