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Retail tycoons gear up for battle over Asos

asos shareholders takeover
asos shareholders takeover

When Scotland’s oldest department store collapsed in late 2020, representatives for Anders Holch Povlsen and Mike Ashley pointed the finger at each other.

Jenners had been a fixture on Princes Street, Edinburgh, since 1838. For many Scots, visiting its lavish Christmas tree and popular toy section was a rite of passage.

But the retailers’ rich history – it had held a Royal Warrant it held since 1911 and was dubbed the ‘Harrods of Scotland’ – was not enough to protect the business from a brutal squeeze on trading when Covid hit.

Frasers had run the department store since 2005. Ashley’s lieutenants accused Holch Povlsen, who had bought the Princes Street premises in 2017 for £53m of not being prepared “to work mutually on a fair agreement”.

Holch Povlsen’s team insisted that rental discounts were tabled but dismissed. More than 200 people lost their jobs.

Two-and-half years later, and with the Danish billionaire in the middle of converting 47 Princes Street into a luxury hotel, another row is brewing between the two billionaires. This time over a company with far less history: Britain’s biggest online fashion retailer.

Asos was one of the biggest winners from the pandemic. Having treated investors to a rollercoaster ride in the decade preceding Covid, the company’s stock surged after the initial shock of lockdown.

As bricks-and-mortar retailers reeled amid deserted high streets, Asos shares hit £57 each in the spring of 2021. The story since then has been a race to the bottom. Asos stock is now worth little more than £3 as bosses grapple with supply chain issues and a squeeze on disposable incomes amid soaring prices.

Holch Povlsen, whose net worth is estimated at nearly £6bn and, among other things, is the UK’s largest individual private landowner, is a believer in the business, however.

Retail tycoon Anders Holch Povlsen remains a firm backer of Asos despite eroding profit margins - TARIQ MIKKEL KHAN/AFP
Retail tycoon Anders Holch Povlsen remains a firm backer of Asos despite eroding profit margins - TARIQ MIKKEL KHAN/AFP

Bestseller, the Dane’s retail empire, is Asos’s largest investor, owning 26pc of the company. Frasers, the group controlled by Ashley, occupies third spot on the shareholder register with a 7pc stake after beginning his stakebuilding last autumn.

In between them sits Camelot Capital Partners, a California-based hedge fund run by 33-year-old Briton Will Barker.

His 11pc shareholding sits in a portfolio that includes a top 10 stake in rival Boohoo as well as electronics retailer AO World. He wants to emulate Warren Buffet, he said in an interview a decade ago.

As profit margins were eroded, refinancing a £350m loan was this spring’s top priority for Asos’s board, led by chairman Jørgen Lindemann and chief executive Jose Calamonte.

Asos’s banks, which included HSBC and Lloyds, were getting nervous about the outlook for the retail sector and convincing them to refinance the loan would be difficult, sources say.

Nevertheless the Asos board did convince its lenders to extend a July 2024 maturity of loan to November 2024 – a move partly to satisfy the company’s auditors that the company was a going concern.

But Lindemann and Jose Calamonte knew this was an interim measure. The solution, the board concluded, was to opt for an “alternative” lender to provide specialist financing when terms cannot be agreed with traditional corporate banks.

One such financing house was Bantry Bay. It had stepped in to save Superdry and Matalan over the last year, and was selected by the board to refinance the loan. But in early May, there was a snag, City sources say.

Bantry Bay’s sole backer – renowned Wall Street hedge fund Elliott – was not willing to sign off the full £350m. The Asos board was told only £275m would be available, those familiar with the talks claim.

Bantry Bay declined to comment – though its representatives have previously insisted that Elliott has no influence in the fund’s investment decisions.

Either way, the Asos board was left in an invidious position. The company was left £75m short.

Frasers, it is understood, was unaware of the negotiations with Bantry Bay. But the FTSE 100 company was all too aware of the difficult trading conditions and the peril facing the Asos board in relation to the £350m debt.

Mike Ashley was previously at loggerheads with Anders Holch Povlsen over Jenners, Scotland’s oldest department store, which shut down in 2020 - John Nguyen/JNVisuals
Mike Ashley was previously at loggerheads with Anders Holch Povlsen over Jenners, Scotland’s oldest department store, which shut down in 2020 - John Nguyen/JNVisuals

Michael Murray, Frasers’ chief executive and Ashley’s son-in-law, told Asos executives he had a solution and hastily convened a conference call with them on May 23.

In return for an additional 5pc stake in Asos, Frasers would invest immediately at the company’s prevailing share price. As part of this, closer cooperation was put forward by taking advantage of Frasers’ retail expertise.

Described as a “win-win” for both parties, the move would reassure other shareholders, staff, customers, credit insurers and suppliers. But this was not a takeover attempt, however, the Asos board was told.

The Asos board did not see it that way, however.

As stock markets closed on the evening of May 25, the company announced a £75m share placing with the option of a further £5m from retail investors. And as related parties, Holch Povlsen and Barker were in on the deal and fully signed up.

On the face of it, the announcement looked like a sensible decision.

Asos would not be subject to a series of restrictive banking covenants – rules that if broken would leave the company in default. The only exception to this was that a minimum level of cash reserves had been retained, bosses said.

But it would come at a cost. The £275m loan comes with an 11pc interest rate and adviser fees and interest payments will cost the company £45m in the second half of the year alone.

Despite its merits, the Asos board’s decision blindsided other institutional investors.

Only weeks earlier, an “amend and extend” had been agreed with existing lenders. Now they were being asked to participate in the funding round to avoid their stake being diluted – and more than half of the proceeds would end up in the pockets of the company’s advisers.

Haunted by a costly adventure backing Debenhams prior to its collapse, the Frasers board was fuming.

Within the space of a week, executives had seen an offer of help snubbed by Asos in favour of a share placing underwritten by the company’s two biggest shareholders.

Moreover, bosses were extremely wary of the choice of lender.

“What was the thinking and decision making behind the refinancing of Asos’s existing RCF with an expensive loan and the selection of a lender backed by Elliott?” Frasers executives asked in a letter to counterparts at Asos.

“Was any consideration given to the position of Asos’s shareholders and the operations of US funds and their loan-to-own strategy?” they added, suggesting that Elliott may hope to swap Bantry Bay’s lending for shares the next time Asos runs short of cash.

In the meantime the Square Mile rumour mill came up with another scenario: could Holch Povlsen be positioning himself to take the business private? Schroders, another Asos investor seemingly shut out of the fundraising, was making and fielding calls last week as speculation swirled.

Holch Povlsen was only 28 when his father handed over the reins to family business Bestseller. He transformed the business into a sprawling retail powerhouse that these days covers the planet.

Bestseller employs more than 18,000 people across online and stores, of which the company runs 2,400. He is also the second-biggest investor in Zalando, the working capital-lite online retailer on which some analysts say Asos is modelling itself on.

Not only has Holch Povlsen diversified into land and property, but is a major investor in payments business Klarna. Until its £410m takeover by Deutsche Bank is completed, he is the largest shareholder in the mid-market investment bank Numis – one of Asos’s in-house brokers.

For Ashley, the opportunity to get his hands on Topshop, the jewel in the crown of Sir Philip Green’s retail empire that Asos acquired out of administration in 2021, is thought to have near-magnetic appeal.

Asos told the City that the £275m loan and shareholder injection would provide “increased flexibility against a challenging macroeconomic backdrop and the stability to focus on long-term value creation”.

But many analysts say a “corporate event” – City jargon for a takeover – could be on the horizon.

Frasers declined to comment this weekend.

An Asos spokesman said the refinancing was an “important milestone” that would give the company “increased flexibility against a challenging macroeconomic backdrop”.

They added: “The equity raise, which was part of the refinancing, was open to participation to all shareholders.”

Lise Kaae, chief executive of Heartland, a holding company that represents the interests of the Holch Povlsen family, said the company did not comment on rumours.

However, she said: “We are pleased to be a part of Asos and have also supported the equity placement, which reflects our confidence in Asos’ long-term prospects.

“This investment will undoubtedly provide a stronger foundation and more operational freedom for Asos’ management to execute their ambitions, strategies, and plans.”

The Danish billionaire, who moved to Scotland 15 years ago, became an unlikely star in an episode of BBC programme Highland Cops earlier this year. Traffic officers followed him for several miles after being caught driving at 82 mph in a 60mph zone.

Shown the results on the speed gun Holch Povlsen remarked “that’s fine… [it is] a nice sunny day, no traffic”.

The Asos board may believe that it has some breathing space. But their biggest investor is a man in a hurry.