Retail magnates prepare for competitive struggle over Asos.

In late 2020, when Jenners, Scotland’s most ancient department store, crumbled, both Mike Ashley and Anders Holch Povlsen’s representatives started a blame game.

Jenners had been an integral part of Edinburgh’s Princes Street since 1838. For many Scottish people, it was a tradition to visit its grand Christmas tree and favoured toy section.

Despite its remarkable history – possessing a Royal Warrant since 1911 and being known as ‘Scotland’s Harrods’ – the retail store could not shield itself from the severe impact of Covid on its trade.

Frasers, operating the department store since 2005, through Ashley’s associates, blamed Holch Povlsen for not being willing to “collaboratively seek a just agreement.” Holch Povlsen purchased the Princes Street property in 2017 for £53m.

Holch Povlsen’s camp asserted that they had proposed rental reductions, which were unfortunately rebuffed. As a consequence, more than 200 employees were left jobless.

Fast forward two-and-a-half years, with Holch Povlsen currently transforming 47 Princes Street into a high-end hotel, another conflict is simmering between the two tycoons. This time, the bone of contention is a company with a significantly shorter history: Asos, the largest online fashion retailer in the UK.

Asos emerged as one of the primary beneficiaries of the pandemic. After a decade-long tumultuous journey for its investors before Covid, the company’s stocks experienced a significant boost following the initial lockdown shock.

While traditional physical retailers struggled with empty city centers, Asos shares soared to £57 apiece in the spring of 2021. However, since then, the narrative has largely been one of decline. With executives wrestling with supply chain difficulties and a crunch on disposable income due to rising costs, Asos stocks are now valued at a mere bit more than £3.

However, Holch Povlsen, who has a net worth close to £6bn and is notably the UK’s biggest private landowner, remains a firm believer in the business.

Bestseller, the retail powerhouse owned by the Danish businessman, is the most significant shareholder in Asos, owning a 26% stake. Meanwhile, Frasers, which is overseen by Ashley, stands as the third-largest shareholder, holding a 7% stake, which began accumulating last autumn.

Occupying the space between them is Camelot Capital Partners, a hedge fund based in California, managed by the 33-year-old British national, Will Barker.

The 11% stake he holds is part of a portfolio that also includes a substantial stake in competitor Boohoo and electronics retailer AO World. Barker expressed his aspiration to follow in the footsteps of Warren Buffet in an interview ten years ago.

As profit margins dwindled, Asos’s board, under the leadership of Chairman Jørgen Lindemann and CEO Jose Calamonte, prioritized refinancing a £350m loan this spring.

The outlook for the retail sector had Asos’s banks, including HSBC and Lloyds, apprehensive, making loan refinancing a tough sell, according to insiders.

Still, the Asos board managed to persuade its lenders to push the maturity date of the loan from July 2024 to November 2024. This move was partially to assure the company’s auditors of its continuing viability.

However, Lindemann and Jose Calamonte recognized this as a temporary measure. The board decided that the solution was to resort to an “alternative” lender capable of providing specialized financing when terms with standard corporate banks couldn’t be agreed upon.

Bantry Bay, a financing firm that had intervened to save Superdry and Matalan over the past year, was chosen by the board to refinance the loan. But in early May, a hitch arose, as per city insiders.

Elliott, the sole supporter of Bantry Bay and a well-known Wall Street hedge fund, was not prepared to approve the full £350m. The Asos board was informed that only £275m would be accessible, those close to the discussions assert.

Bantry Bay chose not to comment, although its representatives have previously stated that Elliott doesn’t influence the fund’s investment choices.

Regardless, the Asos board found itself in a difficult situation. The company was left with a £75m deficit.

It is believed that Frasers was not aware of the discussions with Bantry Bay. However, the FTSE 100 company was acutely aware of the challenging trading conditions and the jeopardy facing the Asos board in relation to the £350m debt.

Michael Murray, Frasers’ CEO and Ashley’s son-in-law, approached Asos executives with a proposed solution, and promptly scheduled a conference call with them on May 23.

In exchange for an additional 5% stake in Asos, Frasers would invest promptly at the company’s current share price. As part of the proposal, they suggested closer collaboration by leveraging Frasers’ retail expertise.

Portrayed as a beneficial deal for both sides, this move would provide reassurance to other shareholders, employees, customers, insurance providers, and suppliers. However, the Asos board was informed that this was not an acquisition bid.

Yet, the Asos board had a different perspective.

On the evening of May 25, as the stock markets closed, Asos announced a £75m share placement with the option of an additional £5m from retail investors. As related parties, Holch Povlsen and Barker were included in the deal and fully on board.

At first glance, this decision seemed sensible.

Asos would not be subjected to a series of restrictive banking covenants – rules that if breached would default the company. The only requirement was to maintain a minimum level of cash reserves, as explained by the management.

However, there was a price to pay. The £275m loan came with an 11% interest rate, and advisory fees and interest payments would cost the company £45m just in the second half of the year.

Despite its advantages, the Asos board’s decision took other institutional investors by surprise.

Just weeks before, an “amend and extend” had been agreed with current lenders. Now they were asked to participate in the funding round to prevent their stake from being diluted – and more than half of the proceeds would go to the company’s advisers.

Still haunted by an expensive investment in Debenhams before its collapse, Fraser’s board was outraged.

Within a week, executives had seen their offer to help rebuffed by Asos in favour of a share placement backed by the company’s two largest shareholders.

Furthermore, they were quite sceptical about the choice of lender.

Frasers’ executives questioned Asos about the thought process and decision-making behind the expensive loan refinance and the choice of a lender backed by Elliott, in a letter to their counterparts.

They added their concerns about Elliott’s potential “loan-to-own” strategy, hinting that Elliott might wish to exchange Bantry Bay’s lending for shares the next time Asos lacks funds.

Meanwhile, rumours emerged in the Square Mile: could Holch Povlsen be positioning himself to privatize the business? Schroders, another Asos investor apparently excluded from the fundraising, made and received calls as speculation swirled.

Holch Povlsen was only 28 when he took over Bestseller, his family business. He expanded the company into a global retail giant.

Bestseller employs over 18,000 people across online platforms and 2,400 stores. He is also the second-largest investor in Zalando, an online retailer with a minimal working capital model, which some analysts believe Asos is emulating.

Holch Povlsen’s investments extend beyond retail into land and property, and he’s a significant investor in the payments business Klarna. Until its £410m acquisition by Deutsche Bank is finalized, he remains the largest shareholder in the mid-market investment bank Numis – one of Asos’s in-house brokers.

For Ashley, the chance to acquire Topshop, the prized asset of Sir Philip Green’s retail empire that Asos bought from the administration in 2021, seems irresistibly attractive.

Asos assured the City that the £275m loan and shareholder investment would offer “increased flexibility against a challenging macroeconomic environment and the stability to focus on long-term value creation

However, several analysts suggest a “corporate event” – a euphemism for a takeover – may be on the horizon.

Frasers chose not to comment over the weekend.

A spokesperson for Asos stated the refinancing was a “significant milestone” providing the company “enhanced flexibility amidst a challenging economic environment”.

They further mentioned, “The equity raise, integral to the refinancing, was open to all shareholders’ participation.”

Lise Kaae, CEO of Heartland, a holding company representing the interests of the Holch Povlsen family, stated that the company does not comment on speculation.

Nevertheless, she expressed, “We are proud to be a part of Asos and have also backed the equity placement, reflecting our belief in Asos’ future growth.

“This investment will undoubtedly establish a stronger base and offer more operational autonomy for Asos’ management to fulfil their ambitions, strategies, and plans.”

Holch Povlsen, the Danish billionaire who relocated to Scotland 15 years ago, gained unexpected fame on a BBC programme, Highland Cops, earlier this year. After being detected driving at 82 mph in a 60 mph zone, traffic officers trailed him for several miles.

Upon seeing the speed gun’s results, Holch Povlsen casually commented, “That’s fine… [it is] a nice sunny day, no traffic”.

The Asos board might think they have some room to breathe. However, their biggest investor is not one to take things slow.

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