Debenhams warns about Frasers Group’s £83m bid to buy Mulberry

Mike Ashley’s Frasers Group launched a bold £83 million bid to take over Mulberry, Britain’s most recognizable luxury brand, after being blindsided with a £10million rights offer.

Sports Direct’s owner, who believes it is the “best steward”, has offered 130p for each share. This represents an 11 percent premium over the Friday closing price.

Frasers, the company that owns Flannels, House of Fraser and Flannels, has said it will not “accept another Debenhams scenario where an otherwise viable business goes into administration”. The statement was referring to the collapse of department store chain in 2019 that wiped out Frasers’ stake worth £300million at one point.

The long-term Mulberry majority shareholder, Challice will be the main opponent in this takeover bid. Frasers has 37 percent of Mulberry. Challice, a Malaysian company, is owned by billionaire Ong Beng Seng, and his wife Christina. They own 56 percent of the Aim listed firm.

Frasers would have to get the Ongs approval before it could offer the Mulberry shares they do not already own. Ong, the property tycoon who was arrested and released last year without charge, had been involved in a case of corruption against Singapore’s Transport Minister, Subramaniam.

The prosecution had claimed that Iswaran accepted favours such as tickets for Formula 1 races or musicals at the West End from Ong. Iswaran acknowledged improperly accepting gifts, but prosecutors dropped serious corruption allegations. Singapore authorities are expected to make a decision “soon” about Ong, according to recent reports. Mulberry declined comment on the matter.

Challice, the company that underwrites Mulberry’s shares, announced on Friday that they needed to place an urgent £10.75 Million placing of shares in order to boost their balance sheet.

Frasers stated on Monday that they were only made aware of the fund-raising plan “immediately before its announcement”.

It said: “Given the total lack of engagement we believe that the status quo is an untenable situation for Frasers as well as the other Mulberry share holders.”

Frasers also stated that it was “extremely concerned” by the opinion of Mulberry’s auditor, who published its annual report after Friday’s market close, which noted “material uncertainty regarding going concern”.

Mulberry, a Bath-based company founded in 1971, and known for its Bayswater bags, has suffered from the global downturn of luxury goods.

Mulberry said that it was in need of fresh funding after a difficult 12 months, during which the brand suffered a £34million pre-tax loss, compared to a £13million profit in the previous year, as sales fell by 4% to £153million. The brand’s sales dropped by 18% in the first 25 weeks following the end of the financial year.

Mulberry’s shares, which were trading at 100p in the morning on Monday, recovered to close at 124p, up 6 1/2p or 5.5%, after Frasers announced its offer.

Frasers’ proposal represents a 30% premium over Mulberry’s 100p retail subscription price and is 11 percent higher than Friday’s closing share price.

Mulberry on Regent Street, London. A potential takeover battle is expected to boost the brand’s profile.

Clive Black, Shore Capital, said “such a premium is modest when compared to recent market levels in the UK, but it is not a fluid play, as opposed to a more concentrated register, and there is scope for a real spat”.

He said that Mulberry was “about gain a lot more visibility” due to the fact that it is on the verge of a possible takeover battle.

Mulberry announced that the net proceeds of the capital raising will be used to improve its balance sheet, and allow Andrea Baldo to implement his strategy as the new chief executive for the leather goods company.

Baldo was the former chief of Ganni, a Danish label for fashion, and was appointed Mulberry’s boss in July, after Thierry Andretta was fired for failing to transform the brand.

Baldo stated that he has been working closely in conjunction with Mulberry teams both internationally and in the UK “to drive rapid, decisive action”. We are focusing on improving operational efficiency, implementing targeted pricing and distribution strategies, and improving our product offering to gain market share in the UK.

The takeover of Mulberry, by Mike Ashley’s Frasers Group, would mark a radical shift in ownership for the British luxury brand.

Since 2003, the leather goods retailer has been owned by billionaire Ong Beng Seng of Singapore, aged 80, along with his wife Christina Ong (76), who together have a net worth of $1.7 billion.

Ong’s wealth is primarily linked to Hotel Properties Limited, which owns luxury hotel and retail investments. He has a reputation of long-term strategic investments in high end brands. He is media-shy, and he operates quietly behind the scenes. He has built a portfolio of premium properties such as Mulberry. Christina, his wife, is known as Queen of Bond Street because of her carefully cultivated relationships with the cream in the luxury sector.

Ashley, 60, founder of Sports Direct, (now Frasers Group), and worth approximately £3,79 billion is the opposite. Ashley is known for his bold personality and has made many high-profile, bold moves in the past, particularly when it came to purchasing struggling British retail brands.

Ashley’s moves are often followed by controversy. In 2021 it was the tracksuit-and-trainer king’s sale of Newcastle United to a Saudi-backed consortium that generated negative headlines. Ashley is in a fight with Mahmud Kamani over Boohoo’s declining share price.

Frasers, with its Flannels fascia has begun to move into the luxury and premium sector. However, its main source of income is its sport division which is more affordable. Ashley would likely take a more hands-on, aggressive approach if he owned Mulberry. He could expand the brand to more mainstream or accessible channels.

It has been feared that his past acquisitions may have diluted the exclusivity and status of luxury brands. His focus is more on increasing sales than maintaining luxury status.